Shock-Dependent Fiscal–Monetary Coordination in a HANK DSGE Framework

Abstract This paper studies fiscal–monetary interaction in a heterogeneous-agent New Keynesian (HANK) DSGE framework with distortionary taxation, state-incontingent government debt, and nominal rigidities. Rather than focusing on Ramsey-optimal allocations, the analysis characterizes the endogenous policy regime that emerges when fiscal and monetary authorities respond to alternative exogenous disturbances under rule-based behavior. The model is calibrated to match key macroeconomic features of the Korean economy, providing an empirically grounded application. The results show that fiscal–monetary coordination is inherently shock-dependent. In response to adverse markup, productivity, and debt shocks, the equilibrium configuration features a passive fiscal stance—implemented through tax and spending adjustments consistent with fiscal sustainability—combined with an active monetary stabilization role. Under expansionary shocks, policy instruments may move procyclically, reflecting the interaction between inflation dynamics, government budget constraints, and household heterogeneity. The presence of heterogeneous households modifies the transmission of fiscal disturbances and limits the effectiveness of debt-financed stabilization, shifting the adjustment burden toward distortionary taxation. Overall, the findings highlight that fiscal–monetary coordination should be understood as an endogenous outcome shaped by institutional constraints, distributional channels, and shock characteristics, rather than as a predetermined policy prescription. JEL Classification: E37, E62, H63