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United in Diversity: A HANK2 model of currency areas

  • Series
  • Speaker(s)
    Gernot Müller (Univeristy of Tuebingen, Germany)
  • Field
    Finance, Macroeconomics
  • Location
    Erasmus University Rotterdam, Campus Woudestein, Polak 2-09
  • Date and time

    November 28, 2022
    11:30 - 12:30

The heterogeneity of currency areas is much discussed ever since Mundell (1961). Traditionally, the focus is on heterogeneity at the macro level and the welfare costs and benefits of a common currency are assessed in terms of countries. In this paper, we account for heterogeneity at the household level as we put forward a heterogeneous agent New Keynesian model of two countries: HANK2. We calibrate the model to the euro area and study the transmission of country-specific shocks. The adjustment dynamics to such shocks differ across countries. Their welfare implications, however, differ not so much across countries but across households along the wealth

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