Macroprudential and Monetary Policy Interactions in a DSGE Model for Sweden

Jiaqian Chen and Francesco Columba

No 2016/074, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; amortization requirement; LTV cap; risk weight; income effect; Macroprudential Policies; Monetary Policy; Collateral Constraints; household debt; household mortgage debt; mortgage interest rate deductability; Mortgages; Amortization; Consumption; Housing prices; Housing; Global (search for similar items in EconPapers)
Pages: 58
Date: 2016-03-23
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Citations: View citations in EconPapers (40)

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