Spillovers and Spillbacks

Sushant Acharya and Paolo Pesenti

No 32245, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study international monetary policy spillovers and spillbacks in a tractable two-country Heterogeneous Agent New Keynesian model. Relative to Representative Agent (RANK) models, our framework introduces a precautionary-savings channel, as households in both countries face uninsurable income risk, and a real-income channel, as households have heterogeneous marginal propensities to consume (MPC). While both channels amplify the size of spillovers/spillbacks, only precautionary savings can change their sign relative to RANK. Spillovers are likely to be larger in economies with higher fractions of high MPC households and more countercyclical income risk. Quantitatively, both channels amplify spillovers by 30-60% relative to RANK.

JEL-codes: E50 F41 F42 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-cba
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Working Paper: Spillovers and Spillbacks (2024)
Working Paper: Spillovers and Spillbacks (2024)
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