Literature

• Heterogeneous Agents
  • Computational
    McKay et al. 16', Kaplan et al. 18', Auclert et al. 20', Ottonello & Winberry 20', Berger et al. 23'
    Empirical moments from the cross-section of high-, middle-, and low-income economies.
  • Analytical
    Werning 15', Acharya & Dogra 20', Ravn & Sterk 21', Bilbiie 24'
    Take an empirical route instead of aiming for tractability.
• Cross-Section
  • Cross-Country
    Almgren et al. 22', Witheridge 24'
    Country-specific estimates spanning HtM shares from $\sim$7% to $\sim$88%.
  • Excess Volatility
    Neumeyer & Perri 05', Aguiar & Gopinath 07', Garcia-Cicco et al. 10', Mendoza 10'
    Incomplete markets as a complementary channel for emerging-market volatility.
• Heterogeneous Agents & Cross-Section
  Herreño & Pedemonte 22', Hong 23', Guntin et al. 23'
  Isolate countercyclical inequality and income risk as the mechanism.

Hand-to-Mouth Shares Data

• Household-level finance surveys
  • Assets, liabilities, income, consumption and demographics for 35 countries, yearly, circa 2017
    Canada: Survey of Financial Security (SFS)  ·  Chile: Encuesta Financiera de Hogares (EFH)  ·  Colombia: Encuesta de Carga Financiera y Educación Financiera (IEFIC)  ·  Denmark: Wealth and other Administrative Registers  ·  European Union: Household Finance and Consumption Survey (HFCS)  ·  Mexico: Encuesta Nacional sobre las Finanzas de los Hogares (ENFIH)  ·  Norway: Household Wealth Statistics  ·  Russia: Russia Longitudinal Monitoring Survey (RLMS-HSE)  ·  South Africa: National Income Dynamics Study (NIDS)  ·  South Korea: Survey of Household Finances and Living Conditions (SFLC)  ·  Thailand: Townsend Thai Survey (TTS)  ·  United Kingdom: Wealth and Assets Survey (WAS)  ·  United States: Survey of Consumer Finances (SCF)

Hand-to-Mouth Shares Methodology

Household $i$ with liquid wealth $m_{it}$ and monthly income $y_{it}$ is hand-to-mouth if

that is, whether household $i$ is near zero liquid wealth or near the credit limit.

It is poor hand-to-mouth if illiquid wealth $a_{it} \le 0$ and wealthy hand-to-mouth if $a_{it} > 0$.

Output Responses to Monetary Shocks Data

• Country-level panel
  • Industrial production, prices, unemployment and interest rates for 35 countries, monthly, 2010–2019
    IMF IFS, World Bank GEM, Eurostat, OECD MEI, national statistical offices
• Country-specific high-frequency monetary policy shocks
  • Daily Inter-Bank Offered Rate (IBOR) fixings and Overnight Index Swap (OIS) curves
    Central banks, benchmark administrators, BIS, FRED
  • Monetary policy meeting dates
    World Central Banks, Central Bank News, central banks
  • Exchange rates, 1- and 10-year yields, VIX, commodity indexes, equity indexes
    Bloomberg, Stooq, Yahoo Finance, central banks

Output Responses to Monetary Shocks Methodology

Consider the country-level VAR

where $\mathbf{y}_t = [ip_t,\, p_t,\, ur_t,\, r_t]$ and

with $\mathbf{S}\mathbf{I}\mathbf{S}' = \boldsymbol{\Sigma}$ and $\boldsymbol{\epsilon}_t = [\epsilon_{ip,t},\, \epsilon_{p,t},\, \epsilon_{ur,t},\, \epsilon_{r,t}]$. The system is identified if

Output Responses to Monetary Shocks External Instruments

Exploit changes in interest rates around monetary meetings

Orthogonalized to purge central bank information effects [Bauer & Swanson 23']

where $\boldsymbol{X}_{t-1}$ is a vector of the changes over the 65 trading days before the meeting in the equity index, the exchange rate, the sovereign yields, the VIX and a commodity index.

Output Responses and Hand-to-Mouth Shares Country Characteristics

Output Responses and Hand-to-Mouth Shares Country Characteristics

Output Responses and Hand-to-Mouth Shares Robustness

• Sample
  • Dropping Cyprus and SloveniaFigure
  • Euro area onlyFigure
• Estimator
  • Local projectionsLP-IVLP
  • Panel SVAR, country fixed effectsFigure
  • Exchange rate in the VARFigure
  • Lag order24612
  • Sampling error in the responsesIndependentDependent
• Instrument
  • One-year swap everywhereFigure
  • Forward premiumFigure
  • Orthogonalised surprisesFigure
• X-axis Definition
  • Percentile rank of HtMFigure
  • GDP per capita, no survey dataFigure
• Y-axis Definition
  • Horizon of the response12m24m60m120m
  • Response per unit of rate cutFigure
  • Central bank rate persistenceFigure
  • Each characteristic in place of the responseFigure

Full Model Households

Continuum of households $i$

where

Full Model Households

Continuum of households $i$

where

Full Model Households

Continuum of households $i$

where

Full Model Households

Continuum of households $i$

where

Full Model Households

Continuum of households $i$

where

Model Households

Continuum of households $i$

where

Procyclical Inequality $\zeta > 0$

Countercyclical Inequality $\zeta < 0$

Model New Keynesian Block

Representative Firm

Wage Phillips Curve (WPC)

Taylor Rule

Fisher

Realized Real Rate

Model Equilibrium

A competitive equilibrium is a path $\{c_{it}, a_{it}, Y_t, \pi_t, r_t, r^{\text{ante}}_t, i_t\}$ such that

• WPC, Taylor rule, Fisher, and the Realized Real Rate equations hold,
• Households optimize given $\{r_t, y_{it}\}$,
• Asset market clears $\;A_t = \int a_{it}\, di = 0$,
• Good market clears $\; C_t = \int c_{it}\, di = Y_t = \int y_{it}\, di $.

Model Calibration

1. Borrowing Limit $\underline{a}$ Calibration

Borrowing constraint$a_{it} \;\geq\; {\color{#1a3b5c}\underline{a}} \;+\; \psi\,\log Y_t$

Match the empirical Hand-to-Mouth Share

2. Cyclicality of Inequality $\zeta$ Calibration

Labour allocation rule$\displaystyle n_{it}(Y_t) \;=\; Y_t\, \frac{e_{it}^{\,{\color{#1f883d}\zeta}\log Y_t}}{\mathbb{E}\!\left[e_i^{\,1+{\color{#1f883d}\zeta}\log Y_t}\right]}$

Two steps, following Auclert & Rognlie (2018)

2. Cyclicality of Inequality $\zeta$ Calibration

Labour allocation rule$\displaystyle n_{it}(Y_t) \;=\; Y_t\, \frac{e_{it}^{\,{\color{#1f883d}\zeta}\log Y_t}}{\mathbb{E}\!\left[e_i^{\,1+{\color{#1f883d}\zeta}\log Y_t}\right]}$

Two steps, following Auclert & Rognlie (2018)

3. Cyclicality of Borrowing Constraints $\psi$ Calibration

Borrowing constraint$a_{it} \;\geq\; \underline{a} \;+\; {\color{#c0392b}\psi}\,\log Y_t$

From the cyclicality of denied and discouraged borrowers

3. Cyclicality of Borrowing Constraints $\psi$ Calibration

Borrowing constraint$a_{it} \;\geq\; \underline{a} \;+\; {\color{#c0392b}\psi}\,\log Y_t$

From the cyclicality of denied and discouraged borrowers

Model Calibration

Full Model Households

Continuum of households $i$

where

Full Model Households

Continuum of households $i$

where

Output Responses to Monetary Shocks External Instrument

When not available, exploit changes in exchange rate futures, since according to CIP

Within a narrow 1-day window around monetary policy announcements

Output Responses to Monetary Shocks External Instrument

When not available, exploit changes in exchange rate futures, since according to CIP

Within a narrow 1-day window around monetary policy announcements

Estimation

Steady-state goods market clearing is given by

And transitional dynamics to a MIT shock by

where $\mathcal{J}^{\mathbf{C},\mathbf{Y}}_{t,s},\, \mathcal{J}^{\mathbf{C},\mathbf{r}}_{t,s}$ are computed via sequence-space Jacobians (Auclert et al. 21’)

Per-country income process — calibration

Replaces the common $(\rho=0.98,\;\sigma=0.8)$ with country-specific AR(1) estimates from code/mydos/official_sigma.do. Everything else (common $\beta=0.75$, official $\psi$ and $\zeta$, New Keynesian Block) unchanged.

Consistency

Robustness Central Bank Rate Persistence