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The Inflationary Effects of Quantitative Easing

Author

Listed:
  • Klein, Mathias

    (Research Department, Central Bank of Sweden)

  • Zhang, Xin

    (Research Department, Central Bank of Sweden)

Abstract

We provide new evidence on the inflationary effects of Quantitative Easing (QE) using Swedish administrative data at the bank, firm, and product level. For identification, we rely on bank-firm lending relationships and the heterogeneous participation rates of banks in the government bond purchase program by the Swedish central bank. Our results show that the bond purchase program led to a significant and persistent increase in producer prices. Importantly, we find that the degree of financial frictions considerably influences firms’ price response: low leverage firms do not change their prices, whereas high leverage firms raise their prices significantly. This divergent pricing behaviour can be rationalized by a significant increase in long-term borrowing and interest rate expenses among high leverage firms. The difference in price responses across high and low leverage firms is less pronounced for exogenous changes in the repo rate implying that the transmission mechanism of QE differs from the one of conventional interest rate policy.

Suggested Citation

  • Klein, Mathias & Zhang, Xin, 2025. "The Inflationary Effects of Quantitative Easing," Working Paper Series 447, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0447
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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