Description

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.

More publications in this series: Working Papers

More publications by: Jiaqian Chen ; Francesco Columba