02/12/2025 - 12:50 - LECL 60 

Charles de Beauffort

(National Bank of Belgium) 

will give a presentation on

Tradable Goods Demand and Fiscal Policy in HANK

 Abstract

We revisit the effects of government consumption expansions in an open-economy New Keynesian model with two production sectors—tradable goods and non-tradable services. Empirically, we show that both consumption and output rise in each sector, even though government consumption is concentrated in services. Introducing household heterogeneity helps resolve these previously puzzling sectoral co-movements. Our quantitative framework incorporates local content in distributed foreign goods and imperfect labor mobility across sectors. Disposable income increases with public demand, boosting private consumption in both sectors. Under plausible calibration, these income-driven consumption gains outweigh the adverse competitiveness effects, generating a positive response of tradable output. Finally, when we allow government consumption to contain a realistic share of tradable inputs, the heterogeneous-agent model delivers sectoral dynamics that closely align with those implied by structural Bayesian VAR estimates for the United States.

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