Simon Wren-Lewis — Why are some central banks so coy about the impact of fiscal policy?

Simon Wren-Lewis lobs a shot across the bow of the Bank of England.

The report does not even say the obvious, which is that fiscal policy will therefore act as a significant drag on growth over the next few years. How much of a drag? The OBR estimate that past fiscal consolidation has reduced GDP by around 2%. We could therefore infer from this paragraph that future consolidation will tend to reduce future GDP by a similar amount. But this assumes that the Bank agrees with the OBR’s assessment about the past, and the Bank says nothing on this....

So why the silence on the impact of fiscal policy? I guess it is deemed politically sensitive to talk about such things. But silence is not a neutral position in the current political context. Silence suggests that the demand impact of fiscal policy is somehow unimportant, or perhaps particularly uncertain: both of which the Bank knows are untrue. This is not about monetary policy makers trying to avoid treading on the toes of fiscal policy makers. It is about monetary policy makers supporting a political position which chooses to be economical with the truth about the impact of fiscal policy. The Bank being coy is the Bank colluding with those who are being economical with the truth.

Mainly Macro
Why are some central banks so coy about the impact of fiscal policy?
Simon Wren-Lewis | Professor of Economics, Oxford University