Sammanfattning: The aim of this essay is to examine whether fiscal policy has any effect on the GDP-gap under fixed- and floating exchange rate. According to the Mundell Fleming-model a fiscal expansion has a positive effect under fixed exchange rate and no effect under floating exchange rate. Sweden among other countries suffers from the financial crisis of 2008. A common response to recessions is to conduct fiscal expansion during bad times. If the theory is valid, such actions will have no effect on the GDP-gap if a country is applying a floating exchange rate regime. The effect of fiscal policy on GDP-gap is examined on four countries, Sweden, Great Britain, Denmark and Germany using multiple regression analysis. The results show that fiscal policy has no- or a negligible effect on the GDP-gap which is contradicting to the Mundell Fleming framework.
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