How the Riksbank's asset purchases during the pandemic affected various financial prices
News, Staff memo The Riksbank’s asset purchases during the pandemic contributed to more expansionary financial conditions via lower yields, in particular on municipal bonds and covered bonds, a somewhat weaker krona and slightly higher equity prices. This is indicated by an analysis performed by Peter Gustafsson, adviser at the Monetary Policy Department in the Staff Memo “An event study of the effects of asset purchases on financial prices during the pandemic".
The coronavirus pandemic led to a historically significant decline in global economic activity and sharp price movements in financial markets over the course of a few months in spring 2020. Economic-policy makers worldwide, including the Riksbank, took measures to prevent a financial crisis and mitigate the real economic effects of the lockdowns. The Riksbank's measures, like several other central banks, included significant purchases of assets. Interest rates and risk premiums stopped rising, and in Sweden they fell to lower levels in many cases than before the pandemic.
The Riksbank’s purchases included both public and private assets and were announced as an envelope for total purchases over a longer period of time. The results of the analysis indicate that the purchases contributed to more expansionary financial conditions via lower yields, in particular on municipal bonds and covered bonds, a somewhat weaker krona and slightly higher equity prices.
However, the results are uncertain, partly because the asset purchases were announced at the same time as other measures, and because the effects probably did not just arise at the time of the announcements. Neither do the estimated effect take account of the fact that asset purchases were aimed at reducing the risk of a financial crisis and can thus underestimate the significance of what would have happened if the Riksbank had not purchased any assets.
By Peter Gustafsson, adviser at the Monetary Policy Department
A Staff Memo provides members of the Riksbank’s staff with the opportunity to publish advanced analyses of relevant issues. It is a publication for civil servants that is free of policy conclusions and individual standpoints on current policy issues. Publication is approved by the appropriate Head of Department. The opinions expressed in staff memos are those of the authors and are not to be seen as the Riksbank’s standpoint.