Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322350 
Year of Publication: 
2025
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 450
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
This paper provides a comprehensive assessment of the macroeconomic and fiscal impact of unconventional monetary tools in small open economies. Using a DSGE model, we show that the exchange rate plays a critical role to amplify the favourable impact of unconventional monetary policy while it attenuates the effectiveness of conventional fiscal policy to jointly boost output and inflation. We then use the model as a laboratory to do a case study of the Swedish Riksbank asset purchases and negative policy rates 2015-2019. We find that the Riksbank unconventional policy measures provided meaningful macroeconomic stimulus to economic activity and inflation, with the dual benefit of reducing overall government debt by about 5 percent of GDP. If conventional fiscal policy had been used to provide a commensurate output boost, inflation would have risen notably less, and the fiscal cost would have amounted to a deterioration of the government debt position with nearly 5 percent of GDP.
Subjects: 
Monetary Policy
Asset Purchases
Quantitative Easing
Negative Interest Rate Policy
Fiscal Policy
JEL: 
D44
E52
E58
E63
Document Type: 
Working Paper

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