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Fiscal Multiplier, Monetary Shock and Hand-to-Mouth Household

Author

Listed:
  • Fei Guo

    (Xian Jiaotong University)

  • Isabel Kit-Ming Yan

    (City University of Hong Kong)

  • Tao Chen

    (University of Macau)

  • Chuntien Hu

    (Xian Jiaotong University)

Abstract

The crux of policy analyses rests with its effectiveness in altering consumer behavior. However, the vast difference across individuals gives rise to a substantial variation in their response to policy shocks. One of representative heterogeneities is the level of liquid assets held by each family. Using the macro-level and household-level data from 20 European countries, this paper attempts to unravel how Hand-to-Mouth (HtM) households, who retain little or no liquid wealth, affects the transmission of fiscal or monetary measures. After separating poor HtM from wealthy HtM consumers, we discover that both are able to ameliorate spending (tax) multipliers. Additionally, we detect a similar role of HtM families in improving the efficacy of monetary policies.

Suggested Citation

  • Fei Guo & Isabel Kit-Ming Yan & Tao Chen & Chuntien Hu, 2021. "Fiscal Multiplier, Monetary Shock and Hand-to-Mouth Household," GRU Working Paper Series GRU_2021_025, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2021_025
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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