New issue of the journal Sveriges Riksbank Economic Review

Date 17/09/2015

Interest and inflation rates through the lens of the theory of Irving Fisher

Magnus Jonsson and André Reslow analyse the risks of a central bank's policy rate remaining low over a long period of time. The analysis is based on Irving Fisher's theory,which posits that the nominal interest rate should be equal to the sum of the expected inflation rate and the real interest rate. The authors also assume that monetary policy is neutral in the long run – i.e. it does not influence the long run development of real economic variables. Using an economic model and empirical estimates with data from several countries, the idea that a low policy rate over a long period of time can lead to low inflation is supported.

Macroprudential policy – effects on the economy and the interaction with monetary policy

Gabriela Guibourg, Magnus Jonsson, Björn Lagerwall and Christian Nilsson analyse the possible consequences of various macroprudential policy measures. Based on economic theory, capital requirements, leverage ratio requirements, loan-to-value limits, debt-toincome limits and debt-service-to-income ratio limits are discussed. The authors provide an overview of the rapidly growing scientific literature and highlight the economic effects of macroprudential policy measures. They also analyse how monetary policy can be affected. New macroprudential policy instruments can deal with financial imbalances more efficiently, which would ease the situation for monetary policy, but they can also affect inflation and resource utilisation in a way that monetary policy may need to consider.

Supply of housing in Sweden

Robert Emanuelson analyses the supply of housing in Sweden. He investigates the factors that have contributed to the low level of housing construction over recent decades. The public sector's share of housing construction has, for example, decreased and government subsidies of new builds have been substantially reduced. New construction is also affected by a distorted incentives structure for both private and municipal builders. There are also laws and regulations that hamper competition on the market and that contribute to a lower-than desirable amount of land ready for development. One conclusion is that the structural problems on the housing market need to be addressed. With more homes, geographical mobility would increase and the labour market would also function better. Furthermore, the risks associated with high household debt would decrease.