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

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

No 1629, 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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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1629

DOI: 10.2139/ssrn.5737798

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