Riksbank Study: The Riksbank's asset purchases since 2015 have contributed to lower interest rates and better economic development

Riksbank studies How have the Riksbank's asset purchases in 2015-2022 functioned? What effects have they had? And what are the experiences of other central banks' purchases? This is described in a Riksbank Study by Björn Andersson, Meredith Beechey Österholm and Peter Gustafsson at the Riksbank's Monetary Policy Department.

Two phases of asset purchases to support the economy and inflation

The Riksbank's purchases of government bonds in 2015-2017 were in an environment where inflation had been below target for a long time, inflation expectations were falling in trend terms, while the ECB was making large purchases of government bonds. The policy rate had been cut below zero and the purchases were aimed at supporting the economy in an uncertain situation and ensuring that inflation rose to the target sufficiently quickly.

In spring 2020, the pandemic broke out. In a short space of time, the turbulence in the financial markets escalated and, at the most turbulent stage, there was a risk that the situation would turn into a financial crisis. The Riksbank then increased its asset purchases with the aim of keeping interest rates low, providing broad support for the supply of credit and supporting the Swedish economy at a time of great uncertainty.

International and Swedish studies indicate positive effects on the real economy and inflation

A large part of the research literature surrounding the asset purchases is based on conditions in large economies where positive effects on the real economy and inflation are found. There are fewer studies on small, open economies like the Swedish one, where purchases can work somewhat differently. For example, the purchases may have a greater impact on the exchange rate.

Studies of the Riksbank's asset purchases suggest that they contributed to more expansionary financial conditions both in 2015-2017 and during the pandemic, for instance because interest rates on various securities fell and the exchange rate weakened. There are relatively few Swedish studies of the effects on economic activity and inflation. However, those that exist give the picture of positive, albeit uncertain, effects on GDP and inflation.

Preventive motives make it more difficult to estimate the cumulative effects of the purchases

The Riksbank's asset purchases have to a large extent had preventive motives. During the period 2015-2017, the purchases were aimed at preventing a continued fall in inflation expectations, and during the pandemic, the Riksbank designed the purchases to a large extent to prevent a financial crisis. This makes it difficult to estimate the total effects of the purchases, since it would be necessary to compare actual developments with developments that did not occur thanks, for example, to the Riksbank's purchases. At the same time, it is difficult to identify the effects of the Riksbank's asset purchases specifically, especially during the pandemic when central banks, governments and authorities in Sweden and abroad also implemented strong measures.

The question of which monetary policy measures are taken always entails a balance between the effects one wishes to attain and other effects that can arise at the same time. The study discusses, among other things, how the purchases may have affected the functioning of the markets in which the Riksbank has bought securities, the risk to the Riksbank's financial independence and the build-up of financial imbalances.

Although the Riksbank's asset purchases were extensive during the pandemic, it is difficult to argue that the purchases could explain a large part of the rise in inflation in the second half of 2021 and 2022. Inflation has risen rapidly across large parts of the world and the upturn is rather a consequence of pandemic-related factors and Russia's invasion of Ukraine.

An English version of the Riksbank Study will be available in a couple of weeks’ time.

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Updated 21/12/2022