This may be due to an interest rate adjustment affecting their disposable income to a greater extent, as I just described. But it may also be due to highly indebted households reacting more to a given change in income than other households. You would expect this to be the case if households with high debt do not have the same opportunity as others to maintain their consumption by borrowing more. 5 See Sveriges Riksbank (2011), The Riksbank’s inquiry into risks on the Swedish housing market, and Hansen, S.  (2013), Explanations of the development of household indebtedness since the mid-1990s, Memorandum 1. Finansinspektionen. 6 See the article “How are households affected by rising interest rates?” in the December 2017 Monetary Policy Report, and Gustafsson, P. et al (2017), How are household cashflows and consumption affected by higher interest rates? Staff memo, Sveriges Riksbank. 7 See, for instance, Flodén, M. et al (2017), “Household Debt and Monetary Policy: Revealing the Cash-Flow Channel”. Sveriges Riksbank Working Paper Series 342. Sveriges Riksbank. 6 [13]  Greater interest-rate sensitivity creates uncertainty about the impact of monetary policy How total consumption will be affected when interest rates are gradually raised towards more normal levels is difficult to know. Interest expenditure will increase, and for some households by a relatively large extent. But the total effect will also depend on what happens in the economy otherwise as regards income from employment, housing prices, expectations, etc.
But there are signs that the matching of job-seekers to vacancies is not working well. The decrease in unemployment in recent years has, above all, been among those born in Sweden. For this group, unemployment is now on a very low level. Unemployment among those born abroad, on the other hand, has not decreased to the same extent and is significantly higher to begin with. A greater supply of foreign-born labour creates the conditions for long-term higher employment, but it is important that the labour market functions efficiently so that the supply of labour can be fully utilised. With a greying population, this will also become increasingly urgent as the demand for labour in areas such as health and social care rises. Despite the economic situation continuing to be strong and both the labour force and employment being expected to increase further in the future, it is the Riksbank’s assessment that unemployment is not expected to fall much more in the years ahead. So, to keep unemployment down – and above all to bring it down significantly below its current level – measures are needed within policy areas other than monetary policy. I do not mean by this that monetary policy has been exhausted. There is scope to make it even more expansionary if need be. But monetary policy cannot be expected to be able to solve structural problems on the labour market.