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The Liquidity Channel of Fiscal Policy

We provide evidence that expansionary fiscal policy lowers return differences between public debt and less liquid assets—the liquidity premium. We rationalize this finding in an estimated heterogeneous-agent New-Keynesian model with incomplete …

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 …

A Temporary VAT Cut as Unconventional Fiscal Policy

We exploit the unexpected announcement of an immediate, temporary VAT cut in Germany in the second half of 2020 as a natural experiment to study the spending response to unconventional fiscal policy. We use survey and scanner data on households’ …

Financial Frictions: Macro vs Micro Volatility

We introduce frictional financial intermediation into a HANK model. Households are subject to idiosyncratic and aggregate risk and smooth consumption through savings and consumer loans intermediated by banks. The banking friction introduces an …

Shocks, Frictions, and Inequality in US Business Cycles

How much does inequality matter for the business cycle and vice versa? Using a Bayesian likelihood approach, we estimate a heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice between liquid and illiquid assets. …