Fiscal Multipliers in a Globally Solved HANK Model with Aggregate Risk

Abstract

We globally solve the canonical HANK model (Auclert et al., 2024) extended with transitory idiosyncratic productivity shocks. We compute generalized impulse response functions for fiscal transfer shocks and investigate the degree of sign and size dependence, with and without aggregate risk. We rely on, and extend, recent advances in solving heterogeneous-agent models in Moving-Average (MA) form (Azinovic-Yang and Žemlička, 2025).

In the limit of no aggregate risk, our global solution method delivers the same impulse response functions around the deterministic steady state as a non-linear Sequence Space Jacobian (SSJ) solution. The sign and size dependence is also the same: the impact effect of negative transfer shocks is amplified relative to a first-order solution, whereas the impact effect of positive transfer shocks is dampened.

We next provide evidence that our global solution with aggregate risk continues to be accurate. The sign and size dependence of the impulse response functions for output remain similar, but with some dampening of especially negative shocks. The mechanism is that, with aggregate risk, the precautionary saving motive is stronger. Output must then be lower on average to be consistent with the same level of government bonds, which is determined exogenously. This implies that the bond-to-income ratio is, on average, higher with aggregate risk, and households are therefore better insured against a given shock. These results hold whether the shock and the response are measured in absolute or relative terms.

Finally, we present evidence that an approximate aggregation result might hold in the model despite large fluctuations in the share of hand-to-mouth households.

Citation

@techreport{DruedahlHuleuxRopke2026b,
author = {Jeppe Druedahl and Raphaël Huleux and Jacob Røpke},
year = {2026},
title = {Fiscal Multipliers in a Globally Solved HANK Model with Aggregate Risk}}