Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322391 
Year of Publication: 
2025
Series/Report no.: 
NBB Working Paper No. 478
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
I show that in a canonical HANK model, under a balanced budget fiscal rule, the effect of a nominal interest rate peg is much larger than in a representative agent (RA) model. By contrast, under a standard fiscal rule where tax revenue responds gradually to deviations of the debt-to-GDP ratio from steady-state and depends on economic activity, the effect of forward guidance is much weaker than in the RA model, and becomes linear in the length of the peg. This result is robust to allowing for countercyclical inequality and income risk, and carries over to a quantitative model with capital.
Subjects: 
Forward guidance
fiscal rules
HANK
JEL: 
E52
E37
Document Type: 
Working Paper

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