S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Sveriges Riksbank (Central Bank of Sweden) Working Paper Series, Sveriges Riksbank (Central Bank of Sweden)

No 283:
Debt Dynamics and Monetary Policy: A Note

Stefan Laséen () and Ingvar Strid ()

Abstract: "Leaning against the wind" – a tighter monetary policy than necessary for stabilizing inflation around the inflation target and unemployment around a long-run sustainable rate – has been justified as a way of reducing household indebtedness. In a recent paper Lars Svensson claims that this policy is counterproductive, since a higher policy rate actually leads to an increase (and not a decrease) in real debt and the debt-to-GDP ratio. In this note we offer some comments and extensions to Svensson´s analysis. In particular, we take Svensson´s debt model to the data and show that it provides an incomplete account of short term debt dynamics. Further, the overall analysis of the effects of monetary policy on debt rests on the rather strong assumption that debt is independent of the policy rate, conditional on housing prices. The policy responses advocated by Svensson can therefore be questioned. More importantly, our exercises with a modified model of debt dynamics enables further understanding of how different assumptions affect the assessment of the effects of monetary policy on debt.

Keywords: House prices; Mortgage Debt; Monetary policy; Bayesian Estimation; Structural VAR; (follow links to similar papers)

JEL-Codes: C32; E21; E31; E32; E44; E52; R21; R31; (follow links to similar papers)

33 pages, December 1, 2013

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

rap_wp283_131219_revised.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Lena Löfgren ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:rbnkwp:0283 This page was generated on 2014-12-14 19:26:40