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A HANK2 model of monetary unions

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  • Bayer, Christian
  • Kriwoluzky, Alexander
  • Müller, Gernot
  • 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 & Seyrich, Fabian, 2023. "A HANK2 model of monetary unions," CEPR Discussion Papers 18258, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18258
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    More about this item

    Keywords

    Two-country model;

    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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