How Should the Fiscal-Monetary Policy Mix Be Implemented in Response to Exogenous Economic Shocks?: The Case of Korea Using the HANK Model

This study analyzes fiscal-monetary policy mix in Korea under exogenous economic shocks using the heterogeneous agents new Keynesian (HANK) model. The shocks include positive and negative markup, TFP, and government debt shocks. Results show that fiscal and monetary policies respond differently, and the policy mix is decoupled—expansionary fiscal and monetary policies are not always applied simultaneously. The findings suggest that countercyclical tax and monetary policies, combined with procyclical fiscal spending, are more effective. In particular, during shocks, increasing capital income taxes and adopting an active monetary policy stance are recommended to stabilize the economy.