When Domestic and Foreign QE Overlap : Evidence from Sweden

What are the effects and transmission channels of asset purchase programs conducted simultaneously locally and abroad on a small open economy? We study the case of Sweden and the contemporaneous QE programs conducted by the ECB and the Riksbank. We find that domestic QE raised GDP, lowered unemployment and depreciated the local currency, while effects on inflation are less clear. The foreign QE had large positive spillover effects on both GDP and inflation in Sweden, despite an initial real exchange rate appreciation of the local currency, and induced an endogenous response of the domestic QE program. The key difference lies in the financial transmission channels. The domestic QE worked through improved lending conditions for households and lower expected future rates, while the foreign QE improved financing conditions for firms