9  According to the Sveriges Riksbank Act, “[t]he objective for monetary policy is to maintain price stability”, According to Government Bill 1997/98:40, “[a]s an authority under the Riksdag, the Riksbank, without prejudice to the price stability market, should furthermore support the goals of general economic policy with a view to maintaining a sustainable rate of growth and high employment”. (My italics.) I interprete “high employment” as “highest sustainable employment”. 10  One exception is when average inflation deviates from average inflation expectations for a long period of time. Then average inflation below inflation expectations will increase average unemployment, see Svensson (2012a). 11  According to Englund’s (2011) article on the development of housing prices and explanations for this in the Riksbank’s inquiry into the risks in the housing markets, monetary policy plays no role here and real housing prices are explained by real quantities. In the general equilibrium model for housing prices calculated using Swedish data by Walentin and Sellin (2010) and which is also used by Claussen, Jonsson and Lagerwall (2011), monetary policy has no long-run effect on housing prices or household debt. 4  BIS central bankers’ speeches  economic costs. Examples of such measures include the loan-to-value cap, regulations on deductions for mortgage rates, taxes, capital adequacy requirements, risk weights and so on. Keeping an eye on risks related to household debt is a task for the policy area known as macroprudential policy. As yet, there is no fully-developed framework for macroprudential policy in Sweden.
Studies indicate that the probability of suffering a large fall in housing prices almost doubles if the saving ratio is unusually low.20 An important difference between Sweden and countries that have experienced severe falls in housing prices, such as Ireland, Spain and the United States, is that the latter have also had a construction boom (see Figure 4). This gradually led to an over-production of housing, which in turn contributed to housing prices falling even more once the market began to weaken. A construction boom appears to be an important – perhaps necessary – ingredient in the recipe for crisis in the property sector. 17  A “left-to-live-on” calculation estimates the difference between disposable income and housing and maintenance costs, possible alimony payments and a standard for households’ cost of living. The banks take into account the borrower’s whole loan situation and assume on average a mortgage rate of around 8 per cent when calculating interest costs and assume some amortisation will be made. Finansinspektionen (2012). 18  A stress test of housing prices in the report shows that a large price fall of 40 per cent and an increase in unemployment of 20 percentage points without unemployment benefit means that only 10 per cent of the new mortgage borrowers have a loan-to-value ratio of over 100 per cent and a deficit in a “left-to-live-on” calculation. (Finansinspektionen 2012, Figure 17). 19  Claussen, Jonsson and Lagerwall (2011).