Household Heterogeneity and the Transmission of Demand Shocks in Uruguay

Households in emerging markets often face substantial labor-income risk while having limited access to financial markets. This paper studies how heterogeneity in income dynamics, unemployment risk, business-cycle incidence, and wealth holdings shapes the transmission of demand shocks in Uruguay. We calibrate a one-asset HANK model with unemployment risk and capital to match key features of the Uruguayan household distribution, including the hand-to-mouth share, wealth concentration, consumption inequality, and the distribution of business-income exposure. In the steady state calibration, average MPC is 0.248 with significant variation, where lower income households have MPCs of 0.498 and higher income households only of 0.074. We find that both expansionary monetary policy shocks and fiscal transfer shocks are amplified relative to a representative-agent benchmark. The amplification is driven primarily by the cross-sectional allocation of income changes: demand shocks raise income disproportionately for households with high marginal propensities to consume. The results show that distributional exposure is central for understanding stabilization policy in emerging markets, where household risk and limited financial access make aggregate demand especially sensitive to who receives income gains.

Web investigador: https://tisnesesteban.github.io/#home