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

Armin Steinbach, Samad Sarferaz, Heiner Mikosch and Andreas Dibiasi
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Armin Steinbach: HEC Paris; Max Planck Institute for Behavioral Economics
Samad Sarferaz: ETH Zurich
Andreas Dibiasi: Free University of Bozen-Bolzano

No 1594, HEC Research Papers Series from 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.

Keywords: Fiscal policy; Monetary policy; Fiscal-monetary interaction; Expectation formation; Survey experiment (search for similar items in EconPapers)
JEL-codes: D83 E52 E62 E63 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2025-11-13
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Related works:
Working Paper: Fiscal Responses to Monetary Policy: Insights From a Survey of Government Officials (2025)
Working Paper: Fiscal Responses to Monetary Policy: Insights from a Survey of Government Officials (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1594

DOI: 10.2139/ssrn.5737798

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