The surge in Swedish housing prices since 2009 is largely driven by fundamental factors, such as expansionary monetary policy and ease of tax policies. Thus, the key to ease pressure on prices is to aim policy measures at these fundamental factors.

In contrast, so-called macroprudential measures – as for example restricting households in their lending – are ineffective in curbing housing prices, and, in addition, will lead to a rigid credit assessment procedure, implying a welfare loss. If there are concerns about the robustness of Swedish banks, we suggest meeting these challenges by designing a stress-testing framework that more adequately reflects current risks.

These some of the main conclusions from a new study on the role of macroprudential policy in Sweden.

The study builds on a previous report on financial regulation in Sweden, where we were asked to analyse the effects of higher capital requirements. In terms of benefits, we found that the Swedish banking sector is already so robust that it would do little to reduce the risk of a new financial crisis. In terms of costs, we found that it could cause a significant reduction in Swedish GDP.

Learn more about the new study

For further information, please contact Sigurd Næss-Schmidt