Monthly Archives: December 2019

Macroprudential Policy and Household Debt: What is Wrong with Swedish Macroprudential Policy?

Macroprudential Policy and Household Debt: What is Wrong with Swedish Macroprudential policy?”, revised March 2020, Nordic Economic Policy Review 2020, forthcoming. Paper. Online appendix

Abstract

Much is right with Swedish macroprudential policy. But regarding risks associated with household debt, the policy does not pass a cost-benefit test. The substantial credit tightening that Finansinspektionen (FI, the Swedish FSA) has achieved – through amortization requirements and more indirect ways – has no demonstrable benefits but substantial costs. The FI, and international organizations, use a flawed theoretical framework for assessing macroeconomic risks from household debt. The tightening was undertaken for mistaken reasons. Several reforms are required for a better-functioning mortgage market. A reform of the governance of macroprudential policy – including a decision-making committee and improved accountability – may reduce risks of policy mistakes.