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

This paper leverages a novel survey among German senior government officials to

investigate fiscal responses to monetary policy shocks. Using randomized vignette

treatments, we present officials with scenarios of increased government interest costs

and analyze their expected fiscal adjustments. Our findings reveal that officials predominantly adjust fiscal policy by increasing debt and reducing spending, with tax

increases being the least favored option. Moreover, they prefer adjusting multiple

fiscal instruments simultaneously rather than changing a single instrument. In a

back-of-the-envelope calculation, we compute the macroeconomic impact of a monetary policy shock under a mixed fiscal policy adjustment.

Publication Date: August 24, 2024

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