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.”


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