Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311122 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2971
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Households' income heterogeneity is important to explain consumption dynamics in response to aggregate macro uncertainty: an increase in uncertainty generates a consumption drop that is stronger for income poorer households. At the same time, labor markets are strongly responsive to macro uncertainty as the unemployment rate and the job separation rate rise, while the job finding rate falls. A heterogeneous agent New Keynesian model with search and matching frictions in the labor market can account for these empirical findings. The mechanism at play is a feedback loop between income poorer households who, being subject to higher unemployment risk, contract consumption more in response to heightened uncertainty, and firms that post fewer vacancies following a drop in demand.
Subjects: 
Households' income heterogeneity
Precautionary savings
HANK and SaM
JEL: 
E12
E31
E32
J64
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6815-7
Document Type: 
Working Paper

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