Template-Type: ReDIF-Paper 1.0
Title: A HANK² Model of Monetary Unions
Author-Name: Christian Bayer
Author-Email: christian.bayer@uni-bonn.de
Author-Name: Alexander Kriwoluzky
Author-Email: akriwoluzky@diw.de
Author-Name: Gernot J. Müller
Author-Email: gernot.mueller@uni-tuebingen.de
Author-Name: Fabian Seyrich
Author-Email: fabian.seyrich@gmail.com
Classification-JEL: F45, E52, D31
Keywords: HANK2, OCA theory, Two-country model, monetary union, spillovers,
monetary policy, heterogeneity, inequality, households

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.


Note: 
Length: 51
Creation-Date: 2023-08
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp449
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2023_449