Monetary-Fiscal Interaction and Quantitative Easing

18 Pages Posted: 23 Jan 2019 Last revised: 21 Feb 2019

See all articles by Josef Hollmayr

Josef Hollmayr

Goethe University Frankfurt

Michael Kuehl

Deutsche Bundesbank - Economics Department

Date Written: 2018


This paper analyzes the monetary-fiscal interaction if the central bank conducts quantitative easing. Although asset purchases have similar effects on the real economy under monetary and fiscal dominance, wealth effects yield a qualitatively different response on the rate of inflation. Our results show that under fiscal dominance, unconventional monetary policy has similar effects to conventional monetary policy on inflation because these wealth effects exert downward pressure on prices. The longer the average maturity, the more volatile is the transmission of quantitative easing to the real economy.

Keywords: Monetary Policy, Fiscal Policy, Asset Purchase Program

JEL Classification: E32, E44, E62

Suggested Citation

Hollmayr, Josef and Kühl, Michael, Monetary-Fiscal Interaction and Quantitative Easing (2018). Deutsche Bundesbank Discussion Paper No. 50/2018. Available at SSRN:

Josef Hollmayr (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323

Michael Kühl

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main

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