Scandinavian Working Papers in Economics
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Konjunkturinstitutet - National Institute of Economic Research Working Papers, Konjunkturinstitutet - National Institute of Economic Research

No 138:
Macroeconomic Effects of a Decline in Housing Prices in Sweden

Peter Gustafsson (), Pär Stockhammar () and Pär Österholm ()

Abstract: Real housing prices in Sweden have roughly doubled the last 15 years. The rise in housing prices has coincided with a rise in household debt, sparking debate about both the presence of financial imbalances in the Swedish economy and the macroeconomic effects that a correction of these imbalances would have. In this paper, we conduct a quantitative assessment of the macroeconomic effects of a considerable decline in housing prices using a Bayesian VAR model. Results show that a 20 per cent drop in housing prices would lead to a recession-like impact on household consumption and unemployment. The impact would be even greater if falling housing prices coincided with a global economic downturn.

Keywords: Bayesian VAR; Housing prices; Household consumption; Unemployment; Small open economy; (follow links to similar papers)

JEL-Codes: C32; F43; (follow links to similar papers)

22 pages, March 17, 2015

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