DP14585 Macroprudential Policy and Household Debt: What is Wrong with Swedish Macroprudential Policy?

Author(s): Lars E.O. Svensson
Publication Date: April 2020
Date Revised: May 2020
Keyword(s): Household Debt, Housing, Macroeconomic Risk, macroprudential policy, Mortgages
JEL(s): E21, G1, G21, G23, G28, R21
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14585

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 (the FI, the Swedish Financial Supervisory Authority) has achieved â?? through amortization requirements and more indirect ways â?? has no demonstrable benefits but substantial costs. The FI - and the international organizations that have commented on risks associated with Swedish household debt - 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 â?? including a decision-making committee and improved accountability â?? may reduce risks of policy mistakes.