The Effects of Quantitative Easing on Swedish Inflation: An Empirical Study of the Swedish Riksbank’s Quantitative Easing Programme between 2015-2019

Abstract: This paper investigates the effects on inflation of the Quantitative Easing programme employed by the Swedish Riksbank during the years 2015-2019. As previous studies have presented contradicting results on the topic, this paper aims to evaluate the potential effect of asset purchases on inflation through some of the main transmission channels identified by prevailing literature, namely the exchange rate, portfolio balancing and signalling channel. The effects are estimated with a Structural Vector Autoregressive (SVAR) model and includes monthly data of the Swedish consumer price index (CPI), growth domestic product (GDP) estimator, real exchange rate of the Swedish krona and term spread, along with data of the announcements and real asset purchases during the time period. To examine the existence of a signalling channel, the model is extended to include interest rate expectations. The results of the study indicate that inflation increases with large-scale asset purchases, mainly through the signalling channel.