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Macroprudential Policy and Household Debt: What Is Wrong with Swedish Macroprudential Policy?

Much is right with Swedish macroprudential policy. But regarding risks associated with household debt, the policy does not pass a cost-benefit test. The substantial credit tightening that Finansinspektionen (FI) has achieved – through amortization requirements and more indirect ways – has no demonstrable benefits but substantial costs. The FI, and international organizations, use a flawed theoretical framework for assessing macroeconomic risks from household debt. The tightening was undertaken for mistaken reasons. Several reforms are required for a better-functioning mortgage market. A reform of the governance of macroprudential policy – including a decision-making committee and improved accountability – may reduce risks of policy mistakes.