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Fiscal Responses to Monetary Policy: Insights From a Survey Among Government Officials

Author

Listed:
  • Dibiasi, Andreas

    (Aix Marseille University)

  • Mikosch, Heiner

    (ETH Zürich)

  • Sarferaz, Samad

    (ETH Zurich)

  • Steinbach, Armin

    (HEC Paris)

Abstract

In a novel survey, we study how German senior government officials systematically adjust fiscal policy in response to economic shocks, focusing on their fiscal responses to a contractionary monetary policy shock. Using randomized vignette treatments, we examine how officials update GDP and inflation expectations under fiscal and monetary policy shock scenarios and assess their preferred fiscal adjustments. Our findings show that officials predominantly respond by increasing debt and reducing spending, with tax increases playing a minor role, often combining multiple fiscal instruments. Counterfactual analysis reveals that officials’ reasoning aligns with key insights from the Heterogeneous Agent New Keynesian literature.

Suggested Citation

  • Dibiasi, Andreas & Mikosch, Heiner & Sarferaz, Samad & Steinbach, Armin, 2024. "Fiscal Responses to Monetary Policy: Insights From a Survey Among Government Officials," HEC Research Papers Series 1531, HEC Paris.
    • Handle: RePEc:ebg:heccah:1531
    DOI: 10.2139/ssrn.4940944
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    More about this item

    Keywords

    Fiscal policy; Monetary policy; Fiscal-monetary interaction; Expectation formation; Survey experiment;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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

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