Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden
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Summary:
We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households face a ceiling on their loan-to-value ratio and must amortize their mortgages. The government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that demand-side macroprudential measures are more effective in curbing household debt ratios than monetary policy, and they are less costly in terms of foregone consumption. A tighter macroprudential stance is also found to be welfare improving, by promoting lower consumption volatility in response to shocks, especially when using a combination of macroprudential instruments.
Series:
Working Paper No. 2016/074
Subject:
Amortization Consumption External debt Financial institutions Housing Housing prices Mortgages National accounts Prices
English
Publication Date:
March 23, 2016
ISBN/ISSN:
9781475546545/1018-5941
Stock No:
WPIEA2016074
Pages:
58
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