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Wednesday, September 04, 2013

'The Riksbank is Wrong about the Debt'

Here's a summary of a post from Lars Svensson at Vox EU:

The Riksbank is wrong about the debt: Higher policy rates increase rather than decrease the household-debt ratio, by Lars E.O. Svensson, Vox EU: The Riksbank maintains high policy rates since it fears that a lower rate would increase the household-debt ratio. This column argues that a higher rate in fact leads to a higher debt ratio, not a lower one. The higher rate reduces nominal housing prices and new mortgages, but since the new mortgages are such a small share of total mortgages, the total nominal debt falls very slowly. Yet nominal GDP falls much faster, so the debt-to-GDP ratio rises.

    Posted by on Wednesday, September 4, 2013 at 02:07 PM in Economics | Permalink  Comments (13)


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