Discussion Paper Details

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Title: Corona Policy According to HANK

Author(s): Marcus Hagedorn and Kurt Mitman

Publication Date: May 2020

Keyword(s): Art.123(1) TFEU, Fiscal/monetary policy interaction, HANK, inflation and monetary financing

Programme Area(s): Monetary Economics and Fluctuations

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."

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Bibliographic Reference

Hagedorn, M and Mitman, K. 2020. 'Corona Policy According to HANK'. London, Centre for Economic Policy Research.