Macroeconomic effects of a decline in housing prices in Sweden

Peter Gustafsson, Pär Stockhammar and Pär Österholm

Journal of Policy Modeling, 2016, vol. 38, issue 2, 242-255

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% 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. This information should be useful to policymakers. If a fall in housing prices were to materialize, more expansionary stabilization policies would be motivated in order to dampen the effects on the real economy.

Keywords: Bayesian VAR; House prices; Private consumption; Unemployment; Small open economy (search for similar items in EconPapers)
JEL-codes: C32 F43 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Working Paper: Macroeconomic Effects of a Decline in Housing Prices in Sweden (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:38:y:2016:i:2:p:242-255

DOI: 10.1016/j.jpolmod.2016.02.011

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