The role of macroprudential policy in Sweden (2017)
• Wen implementing economic policies to countervail the build-up of risks, it is important to identify the source of the risk and implement targeted measures, at the lowest possible cost.
• In terms of the overheated Swedish housing market, this means countering the main drivers behind the surge by:
1. Increase the property tax
2. Reduce the tax relief on interest expenses
3. Normalise the expansive monetary policy
4. Remove barriers to the construction of new housing, for example by improving the subdivision of land and reforming rental Controls.
• However, we advise against implementing any lending restrictions, such as the DTI limit. Such measures are economically inefficient and ineffective in terms of stabilising the housing market.
• The government should take the overall responsibility for countering the current risks on the housing market, as only they have the legislative power to implement the measures targeting the root causes of the booming housing market.
• The FSA should focus on ensuring financial stability. If the responsibility for macroeconomic stability is outsourced to the FSA, there is a risk that several “second-best policies” would be suggested and eventually implemented, as the whole palette of economic policy tools is not available to the FSA.
• We see no need to further expand the mandate of the FSA as it already has financial stability as an objective. As the Swedish financial sector is highly robust, the FSA is cur-rently somewhat successful in achieving their objectives.
• We welcome the work of EBA to increase transparency and comparability of the internal models of banks since this could further convince Swedish policy makers that there is no need to add new layers of financial regulation, such as the DTI limit.