Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden

March 23, 2016

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Format: Chicago

Jiaqian Chen, and Francesco Columba. Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden, (USA: International Monetary Fund, 2016) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Amortization, Consumption, External debt, Financial institutions, Housing, Housing prices, Mortgages, National accounts, Prices

Keywords: Amortization, Amortization requirement, Collateral Constraints, Consumption, Global, Household debt, Household mortgage debt, Housing, Housing prices, Income effect, LTV cap, Macroprudential Policies, Monetary Policy, Mortgage interest rate deductability, Mortgages, Risk weight, WP

Publication Details

Pages:

58
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/074
Stock No:

WPIEA2016074
ISBN:

9781475546545
ISSN:

1018-5941

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