Self-fulfilling fluctuations in HANK economies

We show that in Heterogeneous-Agent New-Keynesian (HANK) economies with countercyclical risk the natural interest rate is endogenous and co-moves with output, leaving the economy sus-ceptible to self-fulfilling fluctuations. Unlike in Representative-Agent New-Keynesian models, the Taylor principle is not sufficient to guarantee uniqueness of equilibrium in HANK if risk is even mildly countercyclical: multiple bounded-equilibria exist, no matter how strongly monetary policy responds to changes in inflation. For an active-monetary policy to eliminate self-fulfilling fluctua-tions, it must stabilize the endogenous natural rate fluctuations. Alternatively, a passive-monetary and active-fiscal regime can also eliminate equilibrium multiplicity.