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Corona Policy According to HANK

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  • Hagedorn, Marcus
  • Mitman, Kurt

Abstract

In this note, we analyze the role of the European Central Bank through the lens of the Heterogenous-agent New Keynesian Model (HANK), a new paradigm of fiscal and monetary policy that abandons the assumption of perfectly functioning financial markets. We emphasize three principles that emerge from this view: 1) the effect of fiscal and monetary financing on inflation; 2) the close interaction between fiscal and monetary policy in the determination of inflation; and 3) an economic perspective on Art.123(1) TFEU, the “prohibition of monetary financing.â€

Suggested Citation

  • Hagedorn, Marcus & Mitman, Kurt, 2020. "Corona Policy According to HANK," CEPR Discussion Papers 14694, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14694
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    References listed on IDEAS

    as
    1. Hagedorn, Marcus, 2016. "A Demand Theory of the Price Level," CEPR Discussion Papers 11364, C.E.P.R. Discussion Papers.
    2. Kurt Mitman & Iourii Manovskii & Marcus Hagedorn, 2017. "The Fiscal Multiplier," 2017 Meeting Papers 1383, Society for Economic Dynamics.
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    Cited by:

    1. Charles A.E. Goodhart & Dimitrios P. Tsomocos & Xuan Wang, 2023. "Support for small businesses amid COVID‐19," Economica, London School of Economics and Political Science, vol. 90(358), pages 612-652, April.
    2. Philipp Pfeiffer & Werner Roeger & Jan in ’t Veld, 2020. "The COVID19-Pandemic in the EU: Macroeconomic Transmission and Economic Policy Response," European Economy - Discussion Papers 127, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. McQuinn, Kieran & Varthalitis, Petros, 2020. "Debt sharing after Covid-19: How the direct involvement of EU institutions could impact the recovery path of a member state," Papers WP663, Economic and Social Research Institute (ESRI).
    4. Bognanni, Mark & Hanley, Doug & Kolliner, Daniel & Mitman, Kurt, 2020. "Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model," IZA Discussion Papers 13797, Institute of Labor Economics (IZA).
    5. Vadim Elenev & Tim Landvoigt & Stijn Van Nieuwerburgh, 2022. "Can the covid bailouts save the economy?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(110), pages 277-330.

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    More about this item

    Keywords

    Hank; Monetary financing; inflation; Art.123(1) tfeu; Fiscal/monetary policy interaction;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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