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Identification of Systematic Monetary Policy

Author

Listed:
  • Lukas Hack
  • Klodiana Istrefi
  • Matthias Meier

Abstract

We propose a novel identification design to estimate the effects of systematic monetary policy on the propagation of macroeconomic shocks. The design combines (i) a time-varying measure of systematic monetary policy based on the historical composition of “hawks†and “doves†in the FOMC with (ii) an instrument that leverages the FOMC rotation of voting rights. We apply our design to government spending shocks. We find that a dovish FOMC supports the expansionary effects of higher spending by delaying policy rate hikes, leading to large fiscal multipliers. GDP does not expand when the FOMC is hawkish, but inflation expectations are contained.

Suggested Citation

  • Lukas Hack & Klodiana Istrefi & Matthias Meier, 2024. "Identification of Systematic Monetary Policy," Working papers 973, Banque de France.
    • Handle: RePEc:bfr:banfra:973
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    Keywords

    Systematic Monetary Policy; FOMC; Rotation; Government Spending;
    All these keywords.

    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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