New Ekonomistas post (in Swedish). Here is an English translation.
Lately the Riksbank has responded to some of the criticism against its policy, and the debate about monetary policy and household debt has become more lively. Don’t miss this:
- The Riksbank, “The effect of monetary policy on household debt“: A one percentage point lower policy rate during 4 quarters leads to about 1.4 percentage points higher debt ratio within a year. The effect vanishes after 6-7 years.
- Lars E.O. Svensson, “The Riksbank: The effect of the policy rate on the debt ratio is neither economically nor statistically significant“: The effect of the policy rate that the Riksbank has reported is neither economically nor statistically significant. It is too small to affect any risks associated with household debt. It is not statistically significant, and it cannot be excluded that a lower policy rate actually leads to a lower debt ratio (something that I have argued here follows from realistic assumptions). In addition, the empirical model used is misspecified.
- Martin Flodén, Deputy Governor, “Should We Be Concerned by High Household Debt?“: A one percentage point higher debt ratio 2007 has led to about 0.02 percentage points higher increase in the unemployment rate during 2007-2012 for a sample of OECD countries. The effect is statistically significant.
- Lars E.O. Svensson, “The end for the Riksbank’s leaning against the wind?“: The Riksbank’s and Martin Flodén’s estimates imply that the cost (in the form of an increased unemployment rate in the next few years) of the Riksbank’s “leaning against the wind” is at least 10 and rather at least 50 times the benefit (in the form of a lower expected increase in the unemployment rate in a crisis). The conclusion should be obvious.