Quantitative Economics

Journal Of The Econometric Society

Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331

Quantitative Economics: Jul, 2023, Volume 14, Issue 3

Fiscal Multipliers: A Heterogenous-Agent Perspective

Correction added on 10 October 2023, after first online publication: Typos were corrected in the title and within citations.
p. 799-816

Tobias Broer, Per Krusell, Erik Öberg

We use an analytically tractable heterogeneous‐agent (HANK) version of the standard New Keynesian model to show how the size of fiscal multipliers depends on (i) the distribution of factor incomes, and (ii) the source of nominal rigidities. With sticky prices but flexible wages, the standard representative‐agent (RANK) model predicts large multipliers because profits fall after a fiscal stimulus and the resulting negative income effect makes the representative worker work harder. Our HANK model, where workers do not own stock, and thus do not receive profit income, predicts smaller fiscal multipliers. In fact, they are smaller with sticky prices than with flexible prices. When wages are the source of nominal rigidity, in contrast, fiscal multipliers are close to one, independently of income heterogeneity and price stickiness.

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Supplemental Material

Supplement to "Fiscal Multipliers: A Heterogenous-Agent Perspective"

Tobias Broer, Per Krusell, and Erik Öberg

This zip file contains the replication files for the manuscript.