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A HANK2 model of monetary unions

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  • Bayer, Christian
  • Kriwoluzky, Alexander
  • Müller, Gernot J.
  • Seyrich, Fabian

Abstract

How does a monetary union alter the impact of business cycle shocks at the household level? We develop a Heterogeneous Agent New Keynesian model of two countries (HANK2) and show in closed form that a monetary union shifts the adjustment to a shock horizontally across countries, within the brackets of the union-wide wealth distribution, rather than vertically, that is, across the brackets of the union-wide wealth distribution. Calibrating the model to the euro area reveals that a monetary union alters the impact of shocks most strongly in the tails of the wealth distribution but leaves the middle class almost unaffected.

Suggested Citation

  • Bayer, Christian & Kriwoluzky, Alexander & Müller, Gernot J. & Seyrich, Fabian, 2024. "A HANK2 model of monetary unions," Journal of Monetary Economics, Elsevier, vol. 147(S).
    • Handle: RePEc:eee:moneco:v:147:y:2024:i:s:s0304393224000321
    DOI: 10.1016/j.jmoneco.2024.103579
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    More about this item

    Keywords

    OCA theory; Two-country model; Monetary union; Monetary policy; Household heterogeneity; Inequality;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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