Latvijas Banka’s Research Seminar

Xin Zhang from Sveriges Riksbank is soon coming to Riga to present his paper “The Inflationary Effects of Quantitative Easing” co-authored with Mathias Klein. See the abstract below.

The seminar will take place on February 21, 14:00-15:30, and happen in the hybrid format: both at Latvijas Banka’s premises (Kr.Valdemāra 1B, Vitrāžu zāle) and in Teams.

To connect online, use the this link or enter the following credentials in Teams:

Meeting ID: 390 993 772 092
Passcode: XrEGa4

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.