According to this equation, consumption falls by around 80 per cent of the decline in disposable income, that is, around 1.6*0.80 = 1.3 per cent. Consumption comprises around 50 per cent of GDP. However, consumption also contains an imported content of around 25 per cent, which means that if consumption falls by 1 per cent, GDP falls by roughly 0.5*(1–0.25) = 0.38 per cent. In the example, thus, GDP falls by 1.3*0.38, or around 0.5 per cent. A more thorough calculation should also take into account indirect effects that arise over time. BIS central bankers’ speeches  11  If, on the other hand, one waits to take measures, the adjustment costs for households when the measures are actually taken will be greater. If interest rates have risen to twice what they are now, which is not at all inconceivable, the effects of abolishing the tax relief will be correspondingly greater. In my opinion, it is thus much better to try to do something about household debt now, when interest rates are low and the conditions in general are relatively favourable, than to be forced to take measures further ahead, when conditions may be less benevolent and the adjustment costs for both individual households and society as a whole will be unnecessarily high. A step in the right direction: more amortisation So how should we deal with the debt problems? I have discussed and compared a number of different possible measures to counteract excessively high debt in the household sector.
The debt ratio has almost doubled in twenty years and this is not a sustainable development. There is a risk that overly optimistic expectations of low interest rates for a long time to come have contributed to increased indebtedness. And a rapid growth in debt, together with optimistic expectations, is a pattern that has often preceded financial crises. Even without a crisis, a large debt overhang will hamper economic developments when conditions change. If one wants to influence the incentives for households to take on debt, how effective might the potential measures be? And how do measures in the new field of macroprudential policy compare with other possible measures? Here we are still to a large extent on uncharted ground. But even if we cannot base our decisions on extensive theoretical and empirical research, we can at least gain a rough idea of the potential effects to be expected, by using some simple calculations. I would like to emphasise that the figures I will mention refer to partial and statistical calculations that are based on a number of simplifying assumptions and that they must therefore be taken with a pinch of salt. At the same time, the calculations illustrate the conditions for taking practical decisions. Ordinary households in Luleå, Upplands Väsby and central Stockholm Let us look at some “typical households”, ordinary Swedish households consisting of two adults and two children. Let us say that one of them comes from the municipality of Upplands Väsby outside Stockholm and one from the city of Luleå in Norrbotten.