Fiscal-Monetary Interactions in the 2020's: Some Insights from HANK Models

Greg Kaplan

RBA Annual Conference Papers from Reserve Bank of Australia

Abstract: I summarize insights from heterogeneous-agent New Keynesian (HANK) models on the interaction between fiscal and monetary policy, with a focus on the macroeconomic experience of the early 2020s. I highlight three features of HANK economies—heterogeneous marginal propensities to consume, the failure of Ricardian equivalence, and an upward-sloping steady-state asset supply curve—that alter how fiscal and monetary forces interact relative to representative-agent models. I discuss two domains of policy: the effects of fiscal stimulus on inflation and the price level, and the fiscal consequences of changes in nominal interest rates. I illustrate these mechanisms in the context of the Covid pandemic by presenting simuluations from the calibrated HANK model in Kaplan and Miyahara (2025), which evaluates counterfactual scenarios for the United States for output, inflation, and the price level under alternative policy responses. The analysis underscores that monetary and fiscal policy are inescapably intertwined, and that HANK models provide a useful framework for quantifying these interactions.

Keywords: heterogeneous agents; HANK; monetary policy; fiscal policy; fiscal-monetary interactions; fiscal theory of the price level (search for similar items in EconPapers)
Date: 2025-09, Revised 2025-11
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
Note: Paper presented at the RBA's annual conference 'Monetary and Fiscal Policy Interactions', Sydney, 4–5 September 2025.
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbaacp:acp2025-02

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