Document Type

Honors Project - Open Access

Abstract

Research into the effects of business cycles often focuses on aggregate macroeconomic consequences. This paper explores the heterogeneous effects of business cycles on households at different wealth and income levels. I perform a Bayesian estimation on a HANK model to identify business cycle forces. Then, I decompose the business cycle shocks and transmission channels driving changes in household decision rules using variance and historical decompositions. I find the factors causing changes in consumption levels for households vary substantially across the income distribution and the factors causing changes in savings levels vary substantially across the wealth distribution. In addition, I find fiscal determinants, including transfers, spending, and taxes, are most impactful for low income and low wealth households while supply-side and monetary determinants, including markups and the interest rate, are most impactful for high income and high wealth households.

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Economics Commons

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