Macroeconomic Implications of Fiscal-Monetary Policy Interactions under Exogenous Shocks: Evidence from a HANK Model of Korea
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This study examines fiscal–monetary policy interactions in Korea using a heterogeneous-agent New Keynesian (HANK) DSGE model with distortionary taxation and nominal rigidities. Fiscal and monetary instruments adjust endogenously to markup, productivity, and government debt shocks. Impulse response analysis shows that policy interactions are shock-dependent and that fiscal and monetary policies do not necessarily move together. Under adverse shocks, taxes and monetary policy respond countercyclically, while government spending behaves procyclically due to fiscal sustainability concerns. Government debt shocks reduce consumption and output, highlighting the stabilizing role of tax adjustments over debt expansion.
