Abolishing the tax relief would have a greater effect. In my example, abolishing the right to tax relief would have roughly the same effect as increasing mortgage rates by 1.7 percentage points. Cutting the mortgage cap from 85 to 75 per cent would not affect all households, but in my examples it would affect the households’ expenditure through higher interest rates and amortisations on the parts of the loan that are not the first loan. The effect of lowering the mortgage cap by ten percentage points as in my example corresponds for our households the cost of an increase in the mortgage rate of just over 1.9 percentage points. In the examples I have given, the introduction of an amortisation requirement would have the largest effect of all. If our households, which at the start did not amortise at all, were to be obliged to pay off their loans over 50 years, the increase in their expenditure would correspond to the increase that would arise if the mortgage rate instead rose by almost 3 percentage points. Some conclusions I wish to emphasise once again that what I have just presented are very simple calculations of the direct effects of various measures on some standard households’ expenditure. To be able to compare different course of action, one really needs more accurate calculations that can take into account how households’ behaviour changes over time as a result of the various measures.
The situation today is thus similar, with countries around the world contemplating how best to conduct macroprudential policy. In some areas, particularly in some emerging markets, they already have some experience of what could be described as macroprudential policy. However, the results have been somewhat mixed and it is unclear what lessons can be learned. The research on macroprudential policy has now begun in earnest, but it is still quite new and has not yet generated any very clear conclusions on which to base a policy. It is probably unavoidable, therefore, that practical policy-making in coming years will consist to a great extent of “learning by doing” – with the emphasis on both “learning” and “doing”. Stabilisation of the financial cycle One of the two main tasks of macroprudential policy is to counteract the build-up of financial imbalances in the economy. This task can be described as macroprudential policy trying to stabilise something I here choose to call the financial cycle. The academic literature on this subject contains other similar concepts such as “credit cycle” and “leverage cycle.”1 What this means in simple terms is that the volume of loans, indebtedness, asset prices and attitude to risk in the economy vary over time in a way that is not necessarily linked to the economic cycle. One usually calls this the cyclical dimension, or time series dimension, of macroprudential policy.