Fiscal-Monetary Interactions in the 2020's: Some Insights from HANK Models

I summarize insights from heterogeneous-agent New Keynesian (HANK) models on the interaction between fiscal and monetary policy, with a focus on the macroeconomic experience of the early 2020s. I highlight three features of HANK economies—heterogeneous marginal propensities to consume, the failure of Ricardian equivalence, and an upward-sloping steady-state asset supply curve—that alter how fiscal and monetary forces interact relative to representative-agent models. I discuss two domains of policy: the effects of fiscal stimulus on inflation and the price level, and the fiscal consequences of changes in nominal interest rates. I illustrate these mechanisms in the context of the Covid pandemic by presenting simuluations from the calibrated HANK model in Kaplan and Miyahara (2025), which evaluates counterfactual scenarios for the United States for output, inflation, and the price level under alternative policy responses. The analysis underscores that monetary and fiscal policy are inescapably intertwined, and that HANK models provide a useful framework for quantifying these interactions.