The Riksbank is wrong about the debt: Higher policy rates increase rather than decrease the household-debt ratio

Lars E.O. Svensson 04 September 2013

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In the last few years, the Riksbank has conducted a monetary policy that has led to substantially lower inflation than the inflation target and unnecessarily high unemployment. The Riksbank has more recently justified this policy by maintaining that a lower policy rate would increase the household-debt ratio (the ratio of debt to disposable income) and thereby any risks associated with the debt.

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Topics:  Monetary policy

Tags:  Sweden, Riksbank, household debt

The great mortgaging

Òscar Jordà, Alan Taylor, Moritz Schularick 12 October 2014

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Understanding the causes and consequences of the rise of finance is a first order concern for macroeconomists and policymakers. The increasing size and leverage of the financial sector has been interpreted as an indicator of excessive risk taking1 and has been linked to the increase in income inequality in advanced economies,2 as well as to the growing political influence of the financial industry (Johnson and Kwak 2010). Yet surprisingly little is known about the driving forces behind these trends.

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Topics:  Economic history Financial markets Global crisis

Tags:  household debt, household leverage ratios, Macroprudential policy

Has US household deleveraging ended? A model-based estimate of equilibrium debt

Bruno Albuquerque, Ursel Baumann, Georgi Krustev 18 April 2014

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The balance sheet adjustment in the household sector has been a prominent feature of the last US recession and subsequent recovery. The beginning of the economic downturn in late 2007 broadly coincided with a sustained reduction in household liabilities relative to income – that is, household deleveraging – which contrasted with the strong build-up of debt before the crisis. From a peak of around 129% in the fourth quarter of 2007, the household debt-to-income ratio fell by 26 percentage points to around 104% in the fourth quarter of 2013, led by sustained declines in mortgage debt.

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Topics:  Global crisis

Tags:  Great Recession, household debt, household deleveraging

How did household balance sheets affect consumption during the Great Recession?

Scott Ross Baker 19 January 2014

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The presence of substantial amounts of household debt in 2007 has prompted many economists and policymakers to link debt to the depth of the recession in the following years. The possibility that higher levels of household debt induce deeper or longer recessions has important implications for both financial regulation and the size of the social safety net. More broadly, a better understanding of the dynamic relationship between a household's spending decisions, income process, and balance sheet is imperative to accurately describe microeconomic drivers of business cycles.

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Topics:  Global crisis

Tags:  consumption, Great Recession, household debt