“Assessing risks to financial stability and macroeconomic stability from household debt,” presentation at Eurogroup meeting, Brussels, March 11, 2019.
“Housing Prices, Household Debt, and Macroeconomic Risk: Problems of Macroprudential Policy I,” December 2018. Paper.
This paper answers three questions about current Swedish housing prices and household debt: (1) Are housing prices too high? (2) Is household debt too high? (3) Does household debt pose an “elevated macroeconomic risk”? Finansinspektionen (the Swedish FSA) has argued that the answers to these questions are all yes and that this has justified a substantial further tightening of already rather tight lending standards, achieved through mandatory amortization requirements and in other ways. This paper argues that the answers to the questions instead are all no, in the following sense: Regarding questions (1) and (2), there is no evidence that housing prices and household debt are higher than what is consistent with their fundamental determinants. Regarding question (3), the “macroeconomic risk” refers to the risk of a larger fall in household consumption in a recession or crisis. There is indeed evidence from Denmark, the UK, and the US of a correlation between households’ pre-crisis indebtedness and subsequent negative consumption responses during the financial crisis 2008-2009. But there is no evidence that high household indebtedness caused a subsequent larger negative consumption response. The correlation is instead explained by an underlying common factor that caused both high pre-crisis indebtedness and a large negative consumption response during the crisis. For Denmark and the UK, the evidence is that the common factor is debt-financed household overconsumption relative to income, more precisely overconsumption financed by housing equity withdrawals. There is also evidence of debt-financed overconsumption for the US. But there is no evidence of debt-financed overconsumption of any macroeconomic significance in Sweden. Therefore, there is no evidence of Swedish household debt posing an elevated macroeconomic risk. In summary, Finansinspektionen’s tightening of lending standards lacks scientific support.
“Monetary Policy and Fiscal Policy in a Nash Equilibrium,” panel contribution in the panel “Interaction between Monetary and Fiscal Policies under Inflation Targeting” at the Annual NBU-NBP Research Conference, “Interaction of Fiscal and Monetary Policies,” Kyiv, Ukraine, May 31-June 1, 2018. Slides.
Panel participation in seminar on Flexible Inflation Targeting at the IMF Spring Meeting, April 18, 2018, with Greg IP, Wall Street Journal as moderater; Tobias Adrian, IMF; Ilan Goldfajn, Central Bank of Brazil; Zdenek Tumame, previously at the Czech National Bank; Ksenia Yudaev, Central Bank of Russia; and me. My contribution are at the times 22:10, 44:50, and 48:45 in the video.
Bloomberg interview: “Inflation Targeting Guru Finds System Has Withstood the Test,” March 19, 2018.
“Amorteringskraven: Inga sakliga skäl men negativa konsekvenser“, presentation på Bankföreningens lunchseminarium, 20 februari 2018.