Fiscal Multipliers in Small Open Economies with Heterogeneous Households

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 mul-
tipliers 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.