Discussion paper

DP14694 Corona Policy According to HANK

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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Citation

Hagedorn, M and K Mitman (eds) (2020), “DP14694 Corona Policy According to HANK”, CEPR Press Discussion Paper No. 14694. https://cepr.org/publications/dp14694