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Hawkish or dovish central bankers: do different flocks matter for fiscal shocks?

Author

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  • Hack, Lukas
  • Istrefi, Klodiana
  • Meier, Matthias

Abstract

This column presents evidence on the role that US monetary policy plays in how fiscal spending affects the economy. A dovish Federal Open Market Committee (FOMC) delays policy rate increases, while a hawkish FOMC tightens monetary policy more promptly, following increased fiscal spending. We show that the dovish response supports fiscal expansions. In contrast, the hawkish response results in a GDP decline but effectively controls inflation expectations. JEL Classification: E32, E52, E62, E63, H56

Suggested Citation

  • Hack, Lukas & Istrefi, Klodiana & Meier, Matthias, 2023. "Hawkish or dovish central bankers: do different flocks matter for fiscal shocks?," Research Bulletin, European Central Bank, vol. 114.
    • Handle: RePEc:ecb:ecbrbu:2023:0114:
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    References listed on IDEAS

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    1. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
    2. Dao, Mai & Dizioli, Allan Gloe & Jackson, Chris & Gourinchas, Pierre-Olivier & Leigh, Daniel, 2023. "Unconventional Fiscal Policy in Times of High Inflation," CEPR Discussion Papers 18435, C.E.P.R. Discussion Papers.
    3. Michael Woodford, 2011. "Simple Analytics of the Government Expenditure Multiplier," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 1-35, January.
    4. Klodiana Istrefi, 2019. "In Fed Watchers Eyes: Hawks, Doves and Monetary Policy," Working papers 725, Banque de France.
    5. Valerie A. Ramey & Sarah Zubairy, 2018. "Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 850-901.
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    Cited by:

    1. Jurkšas, Linas, 2024. "The impact of the heterogenous fiscal policy stance of euro-area member states on ECB monetary policy," Economic Systems, Elsevier, vol. 48(4).

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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