During this period of adjustment, it is possible that their economic situation may deteriorate. But, over the longer term, when debts have been decreased, mortgage borrowers may benefit. This long-term distribution effect may be worth emphasising as it is seldom mentioned in the debate. In the study I mentioned previously, the authors have also tried to estimate how much mortgage borrowers could benefit from indebtedness decreasing over the longer term.16 One of their example calculations assumes that Finansinspektionen introduces a debt-to-income limit that reduces household debt-to-income limits by 10 per cent. This leads to mortgage borrowers’ interest expenditure becoming lower over the longer term, so that their disposable incomes become higher. They thus become able to consume more goods and buy better housing. In this simple calculation, consumption becomes around 1 per cent higher over their lifetimes. The losers are the debt-free households, which lose out on interest income as  16 This calculation can be found in Finocchiaro et al. (2016). 16 [23]  indebtedness in the economy decreases. As mortgage borrowers are more economically vulnerable than other households, measures that reduce their indebtedness may thus be advantageous from the perspective of distribution, at least over the longer term. Another measure that is often discussed to reduce indebtedness is a gradual reduction of tax relief on interest expenditure. This tax relief subsidises debt and gives households an incentive to take larger mortgages than they would have done without tax relief.
SPEECH DATE:  16 May 2017  SPEAKER:  Governor Stefan Ingves  VENUE:  Swedish Economics Association  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergst org 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn @ riks ban k.se www.riksb ank.s e  Monetary policy challenges – weighing today against tomorrow* I’d like to begin by thanking you for the opportunity to come here to the Swedish Economics Association. As many of you know, this is a tradition, and today’s speech is my twelfth in a row. I have always appreciated the opportunity to come here and discuss both current issues and long-term themes of more fundamental significance for the Riksbank’s operations. Today’s speech is about monetary policy and its challenges in a slightly longer perspective. But before broaching that subject, I would first like to comment on the news item published by the Riksbank this morning. In brief, it states that the Executive Board is considering switching over to a new target variable, the CPIF, this autumn, and introducing a ‘variation band’ to illustrate uncertainty over the development of inflation. Ever since the inflation target was introduced nearly 25 years ago, it has been defined as the annual change in the consumer price index, the CPI. However, in recent years, the CPI has become increasingly difficult to use as guidance for monetary policy.