Implications of Fiscal-Monetary Interaction from HANK Models

Greg Kaplan

No 34117, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I describe nine implications of the interconnectedness of fiscal and monetary policy that surface in Heterogeneous Agent New Keynesian (HANK) models. Not all are unique to HANK models. (i) Long run fiscal changes force monetary adjustments. (ii) Sustainable permanent deficits are feasible. (iii) Monetary policy leaves fiscal footprints, even with passive fiscal policy. (iv) Fewer controversies around active fiscal policy. (v) Equilibria are unique under a wider class of fiscal and monetary rules. (vi) With short-term debt, raising nominal rates without a fiscal contraction raises inflation. (vii) Unfunded fiscal stimulus is more inflationary. (viii) Even fully funded fiscal stimulus is inflationary. (ix) Fiscal transfers can substitute for monetary policy in the aggregate.

JEL-codes: E2 E3 E4 E5 E6 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-dge and nep-mon
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