Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/129713 
Authors: 
Year of Publication: 
2015
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 298
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
Since the mid-1990s, many OECD countries have experienced a substantial increase in household indebtedness. Sweden, in particular, has seen indebtedness rise from 90% of disposable income in 1995 to 172% in 2014. The Swedish Financial Supervisory Authority (FSA) has identified mortgage amortization requirements as a potential instrument for reducing indebtedness; and has drafted guidelines that will intensify the rate and duration of amortization. In this paper, I characterize Swedish-style mortgage contracts, which differ substantially from U.S.-style contracts. I then evaluate the policy changes in an incomplete markets model with three types of debt and a novel mortgage contract specification that is calibrated to match Swedish micro and macro data. I find that intensifying the rate and duration of amortization is largely ineffective at reducing indebtedness in a realistically-calibrated model. In the absence of implausibly large refinancing costs or tight restrictions on the maximum debt-service-to-income ratio, the policy impact is small in aggregate, over the lifecycle, and across employment statuses. These results may be relevant for other OECD countries, such as Norway and Canada, that have also not seen a reduction in house prices or indebtedness since the 2007 financial crisis.
Subjects: 
Mortgages
Amortization
Heterogeneous Agents
Incomplete Markets
Financial Regulation
JEL: 
E44
G21
R21
Document Type: 
Working Paper

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