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Fiscal Multipliers in Small Open Economies with Heterogeneous Households

Author

Listed:
  • Jeppe Druedahl

    (University of Copenhagen
    CEBI)

  • Søren Hove Ravn

    (University of Copenhagen)

  • Laura Sunder-Plassmann

    (University of Rostock)

  • Jacob Sundram

    (University of Copenhagen)

  • Nicolai Waldstrøm

    (University of Copenhagen)

Abstract

We study fiscal multipliers in a Small Open Economy Heterogeneous Agent New Keynesian (SOE-HANK) model. We provide a set of equivalence results under which the fiscal multiplier in our SOE-HANK model is the same–at any horizon–as in a corresponding representative agent (RANK) model. Under more general assumptions, the fiscal multipliers in the two models are not equivalent, but remain relatively similar. Yet, we show that the underlying channels driving the fiscal multipliers differ substantially. In particular, consumption increases while net exports tend to decline in the HANK model, whereas the opposite is true in the RANK model.

Suggested Citation

  • Jeppe Druedahl & Søren Hove Ravn & Laura Sunder-Plassmann & Jacob Sundram & Nicolai Waldstrøm, 2025. "Fiscal Multipliers in Small Open Economies with Heterogeneous Households," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 73(3), pages 654-707, September.
    • Handle: RePEc:pal:imfecr:v:73:y:2025:i:3:d:10.1057_s41308-025-00281-2
    DOI: 10.1057/s41308-025-00281-2
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