Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300455 
Year of Publication: 
2024
Series/Report no.: 
Staff Report No. 1089
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We study international monetary policy spillovers and spillbacks in a tractable two-country Heterogeneous Agent New Keynesian model. Relative to Representative Agent (RANK) models, our framework introduces a precautionary-savings channel, as households in both countries face uninsurable income risk, and a real-income channel, as households have heterogeneous marginal propensities to consume (MPC). While both channels amplify the size of spillovers/spillbacks, only precautionary savings can change their sign relative to RANK. Spillovers are likely to be larger in economies with higher fractions of high MPC households and more countercyclical income risk. Quantitatively, both channels amplify spillovers by 30-60 percent relative to RANK.
Subjects: 
monetary policy spillovers
incomplete markets
precautionary savings
real-income channel
JEL: 
E50
F41
F42
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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