Quantitative Easing and Fiscal Policy

Sammanfattning: This thesis investigates if fiscal policy and quantitative easing (QE) can interact to raise the inflationary effect from central bank asset purchases. This is done by applying a distributed lag model on a set of macroeconomic variables for Sweden and the United States. The results show strong signs of interaction between the two policies in the U.S. but weaker and less clear results in Sweden. The overall results indicates that the outcome of policy actions can vary greatly depending on the direction of the respective actions. QE purchases can result in overshooting the inflation target while expansive fiscal policy is conducted or be rendered useless if fiscal policy is contractionary. These are findings that can inspire to further research that could be of great importance for policy makers.