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Shocks, Frictions, and Inequality in US Business Cycles

We show how a heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice can be estimated in state space using a Bayesian approach. To render estimation feasible, the structure of the economy can be exploited and the …

Mr. Keynes meets the Classics: Government Spending and the Real Exchange Rate

In economies with fixed exchange rates, the adjustment to government spending shocks is asymmetric. Expansionary shocks are absorbed by the real exchange rate, contractionary shocks by output. This result emerges in a small open economy model with …

Unconventional Fiscal Policy at Work

In an effort to stabilize the economy during the Covid-19 pandemic, the German government reduced value added taxes (VAT) by three percentage points for a period of six months in the latter half of 2020. This measure resulted in a boost in aggregate …

The Liquidity Channel of Fiscal Policy

Expansionary fiscal policy lowers the return difference between public debt and less liquid assets - the liquidity premium. We rationalize this finding in an estimated heterogeneous-agent New-Keynesian model with incomplete markets and portfolio …

The Coronavirus Stimulus Package: How large is the transfer multiplier?

In response to the COVID-19 pandemic, large parts of the economy were locked down and, as a result, households' income risk rose sharply. At the same time, policy makers put forward the largest stimulus package in history. In the U.S., it amounted to …

Uncertainty-driven Business Cycles: Assessing the Markup Channel

Precautionary pricing and increasing markups in representative-agent DSGE models with nominal rigidities are commonly used to generate negative output effects of uncertainty shocks. We assess whether this theoretical model channel is consistent with …

Does Austerity Pay Off?

We investigate empirically how fiscal shocks—unanticipated and exogenous changes of government consumption growth—impact the sovereign default premium. For this purpose we assemble a new data set for 38 emerging and developed economies. It contains …

The Costs of Economic Nationalism: Evidence from the Brexit Experiment

Economic nationalism is on the rise, but at what cost? We study this question using the unexpected outcome of the Brexit vote as a natural macroeconomic experiment. Employing synthetic control methods, we first show that the Brexit vote has caused a …

Time-Varying Business Volatility and the Price Setting of Firms

Does time-varying business uncertainty/volatility affect the price setting of firms and in what way? We estimate from the micro data of the German ifo Business Climate Survey the impact of idiosyncratic volatility on the extensive margin of …

Risk Matters: The Real Effects of Volatility Shocks: Comment

We show that the risk-shock business cycle model of Fernández-Villaverde et al. (2011) must be recalibrated because it underpredicts the targeted business cycle moments by a factor of three once a time aggregation error is corrected. Recalibrating …