Macroprudential and Monetary Policies Interactions in a DSGE Model for Sweden

Francesco Columba and Jaqian Chen
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Jaqian Chen: IMF

No 913, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We analyse the effects and the interactions of macroprudential and monetary policies with an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households are constrained by a loan-to-value ratio and mortgages are amortized. Government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that to curb the household debt-to-income ratio demand-side macroprudential measures are more effective and less costly in terms of foregone consumption than monetary policy. A tighter macroprudential stance is also welfare improving, by promoting lower consumption volatility in response to shock, especially when combining different instruments, whose sequence of implementation is key.

Date: 2016
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:913

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