Working Paper: NBER ID: w28366
Authors: Tobias Broer; Per Krusell; Erik Berg
Abstract: 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.
Keywords: No keywords provided
JEL Codes: E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal stimulus (E62) | Increase in labor supply (J20) |
| Profit income effects (D33) | Increase in labor supply (J20) |
| Fiscal stimulus (E62) | Profits fall (E25) |
| Profits fall (E25) | Negative income effect (H31) |
| Negative income effect (H31) | Increase in labor supply (J20) |
| Sticky wages (J31) | Smaller fiscal multipliers (E62) |
| Nominal wage rigidity (J31) | Fiscal multipliers close to one (E62) |