Fiscal multipliers and liquidity constraints: a hank approach

Abstract

Fiscal stimuli in the aftermath of COVID-19 were similar in size but generated different eco nomic responses across countries. This paper studies the role of Poor Hand-to-Mouth and Wealthy Hand-to-Mouth agents in shaping fiscal multipliers, comparing a Heterogeneous Agents New Keynesian Model with one and two assets, to properly account for the correct share of liquidity-constrained agents. The findings suggest that multipliers are greater when the two asset framework is employed, but only the share of Poor Hand-to-Mouth agents is significant to explain cross-country heterogeneity in multipliers. These results are robust to the multiplier choice, the shock financing and the monetary policy employed.