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School of Economics and Finance

No. 845: US financial shocks and the distribution of income and consumption in the UK

Haroon Mumtaz , Queen Mary University of London
Konstantinos Theodoridis , Cardiff Business School

December 28, 2017

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We show that US financial shocks have an impact on the distribution of UK income and consumption. Households with higher income and higher levels of consumption are affected more by this shock than households located towards the lower end of these distributions. An estimated multiple agent DSGE model suggests that the heterogeneity in the household responses can be explained by the different levels of access to financial markets. We find that this heterogeneity magnifies the effect of this shock on aggregate output.

J.E.L classification codes: D31, E32, E44

Keywords:FAVAR, DSGE model, Financial Shock