Discussion paper

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

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 – through amortization requirements and more indirect ways – 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 – including a decision-making committee and improved accountability – may reduce risks of policy mistakes.

£6.00
Citation

Svensson, L (2020), “DP14585 Macroprudential Policy and Household Debt: What is Wrong with Swedish Macroprudential Policy?”, CEPR Press Discussion Paper No. 14585. https://cepr.org/publications/dp14585