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Tobias Müller
- 3 June 2026
- WORKING PAPER SERIES - No. 3244Details
- Abstract
- We study how sector-specific fiscal policy propagates in an economy with heterogeneous households and production networks. We develop a multisector New Keynesian model in which input-output linkages interact with differences in households’ marginal propensities to consume (MPCs). We show that fiscal multipliers depend on sectors’ positions in the production network, as network linkages reallocate income across households with heterogeneous consumption responses. We derive an intersectoral Keynesian cross and introduce an MPC-augmented network multiplier that jointly characterize the transmission of fiscal shocks. The interaction between heterogeneous consumption responses and production networks is non-additive: network linkages can either amplify or attenuate fiscal transmission depending on how income is redistributed across households. Fiscal policy is most effective when spending is directed toward labor-intensive, downstream sectors that employ a large share of high-MPC households. Using data from the Survey of Consumer Finances, we document substantial sectoral heterogeneity in household balance sheets and in the prevalence of hand-to-mouth households. Calibrating the model to the U.S. economy, we find sizable variation in sectoral fiscal multipliers and significant distributional effects of government spending.
- JEL Code
- D57 : Microeconomics→General Equilibrium and Disequilibrium→Input?Output Tables and Analysis
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 30 June 2025
- OCCASIONAL PAPER SERIES - No. 371
- 23 June 2020
- WORKING PAPER SERIES - No. 2424Details
- Abstract
- Forward guidance operates via the expectations formation process of the agents in the economy. In standard quantitative macroeconomic models, the expectations are unobserved state variables and little scrutiny is devoted to analysing the dynamic behaviour of these expectations. We show that the introduction of survey and financial market-based forecasts in the estimation of the model disciplines the expectations formation process in DSGE models. When the model-implied expectations are matched to observed expectations, the additional information of the forecasts restrains the agents’ expectations formation. We argue that the reduced volatility of the agents’ expectations dampens the model reactions to forward guidance shocks and improves the out-of-sample forecast accuracy of the model. Furthermore, we evaluate the case for introducing a discount factor as a reduced form proxy for a variety of microfounded approaches, proposed to mitigate the forward guidance puzzle. Once data on expectations is considered, the empirical support to introduce a discount factor dissipates.
- JEL Code
- C13 : Mathematical and Quantitative Methods→Econometric and Statistical Methods and Methodology: General→Estimation: General
C52 : Mathematical and Quantitative Methods→Econometric Modeling→Model Evaluation, Validation, and Selection
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy