  Using a semi-structural approach, the paper identifies how heterogeneity and
financial frictions affect the transmission of aggregate shocks. Approximating
a heterogeneous agent model around the representative agent allocation can
successfully trace the aggregate and distributional dynamics and can be
consistent with alternative mechanisms. Employing Spanish macroeconomic data as
well as firm and household survey data, the paper finds that frictions on both
consumption and investment have rich interactions with aggregate shocks. The
response of heterogeneity amplifies or dampens these effects depending on the
type of the shock. Both dispersion in consumption shares and the marginal
revenue product of firms, as well as the proportion of investment constrained
firms are key determinants of the fiscal multiplier.
