The Riksbank Unconventional Monetary Policies And The Swedish Krona

Abstract

This thesis examines the impact of Swedish Riksbank unconventional monetary policy on the EURSEK exchange rate, focusing on the exchange rate channel of quantitative easing programs. It extends previous research by investigating a longer time frame from January 1999 through December 2019 and includes a discussion on the effects of negative interest rates. Using structural vector autoregression, we find unexpected innovations to Riksbank asset purchases of long-term bonds significantly influence the exchange rate. The results suggest that an increase in Riksbank holdings of long term-bonds with 1 percentage unit of GDP depreciates the Swedish Krona against the Euro by approximately 0,9 percent. A further exploration of the effect of innovations to short-term rates on exchange rates found a significant impact consistent with the Mundell-Fleming model, suggesting that negative rates by the Riksbank led to further depreciationary pressure on the Swedish Krona.