Corona Policy According to Hank

10 Pages Posted: 8 May 2020

See all articles by Marcus Hagedorn

Marcus Hagedorn

University of Oslo - Department of Economics

Kurt Mitman

Stockholm University; Centre for Economic Policy Research (CEPR)

Date Written: May 2020

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."

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

JEL Classification: D52, E31, E52, E62, E63

Suggested Citation

Hagedorn, Marcus and Mitman, Kurt, Corona Policy According to Hank (May 2020). CEPR Discussion Paper No. DP14694, Available at SSRN: https://ssrn.com/abstract=3594328

Marcus Hagedorn (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Kurt Mitman

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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