From Micro to Macro: The Influence of Firm Heterogeneity on Foreign Shock Transmission [Submitted]

with Christian B. Kastrup.

Abstract: We investigate the role of firm heterogeneity and adjustment costs in the transmission of foreign supply shocks. Our starting point comes from a theoretical insight: If larger firms rely more on easily adjustable inputs, such as materials, then the aggregate output response to changes in the price of these inputs gets amplified relative to a representative firm economy. We next provide empirical evidence that larger firms are indeed more materials-intensive and more responsive to an exogenous foreign shock. We show that a New-Keynesian general equilibrium model with multiple sectors and firm heterogeneity is consistent with these facts. We find that firm heterogeneity, in line with the data, amplifies the response of output and prices to a foreign supply shock, but dampens the labor and GDP responses.

The Transmission of Foreign Demand Shocks

with Jeppe Druedahl, Søren Hove Ravn, Laura Sunder-Plassmann and Jacob Marott Sundram.

Abstract: Introducing heterogeneous households into a New Keynesian model of a small open economy enables the model to fit a set of stylized empirical facts about the transmission of foreign demand shocks. In the absence of a strong labor income effect on consumption, the model counterfactually implies that domestic consumption decreases as the central bank raises the interest rate to curb domestic inflation. With plausible marginal propensities to consume, the model instead produces the observed increase in domestic consumption of both tradeable and non-tradeable goods. This implies that foreign demand shocks are more important for international business-cycle comovement than predicted by existing models. Our findings also have implications for stabilization policies: While monetary policy is well-suited to counteract foreign demand shocks, tra- ditional fiscal policies are inadequate, as they do not provide sufficient stimulus to the tradeable sector. This poses a particular challenge for countries with a fixed exchange rate or in a monetary union.

Fiscal Multipliers in Small Open Economies With Heterogeneous Households

with Jeppe Druedahl, Søren Hove Ravn, Laura Sunder-Plassmann and Jacob Marott Sundram.

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.

Supply shocks and household heterogeneity in Open Economies: Implications for Optimal Monetary Policy

Lecturer in Advanced Macroeconomics: Heterogenous Agent Models 2024

• Graduate level course on macroeconomic dynamics with heterogenous agents.

TA in Advanced Economics of the Environment and Climate Change 2021

• Graduate level course on environmental-, natural ressource- and climate change economics

TA in Principle of Economics B 2018

• Macro 101

Supervisor for BA thesis

• I have supervised multiple students in areas within business cycle macro