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Macroeconomic effects of a decline in housing prices in Sweden

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  • Gustafsson, Peter
  • Stockhammar, Pär
  • Österholm, Pär

Abstract

Real housing prices in Sweden have roughly doubled the last 15 years. The rise in housing prices has coincided with a rise in household debt, sparking debate about both the presence of financial imbalances in the Swedish economy and the macroeconomic effects that a correction of these imbalances would have. In this paper, we conduct a quantitative assessment of the macroeconomic effects of a considerable decline in housing prices using a Bayesian VAR model. Results show that a 20% drop in housing prices would lead to a recession-like impact on household consumption and unemployment. The impact would be even greater if falling housing prices coincided with a global economic downturn. This information should be useful to policymakers. If a fall in housing prices were to materialize, more expansionary stabilization policies would be motivated in order to dampen the effects on the real economy.

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  • Gustafsson, Peter & Stockhammar, Pär & Österholm, Pär, 2016. "Macroeconomic effects of a decline in housing prices in Sweden," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 242-255.
    • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:2:p:242-255
    DOI: 10.1016/j.jpolmod.2016.02.011
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    Cited by:

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    2. Balcilar, Mehmet & Roubaud, David & Uzuner, Gizem & Wohar, Mark E., 2021. "Housing sector and economic policy uncertainty: A GMM panel VAR approach," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 114-126.
    3. Nakatani, Ryota, 2020. "Macroprudential policy and the probability of a banking crisis," Journal of Policy Modeling, Elsevier, vol. 42(6), pages 1169-1186.
    4. Christophe André, 2016. "Household debt in OECD countries: stylised facts and policy issues," Chapters from NBP Conference Publications, in: Hanna Augustyniak & Jacek Łaszek & Krzysztof Olszewski & Joanna Waszczuk (ed.), Papers presented during the Narodowy Bank Polski Workshop: Recent trends in the real estate market and its analysis - 2015 edition, chapter 2, pages v1, 33-85, Narodowy Bank Polski.
    5. Insoo Baek & Sanghyo Lee & Joosung Lee & Jaejun Kim, 2021. "Analysis of Housing Market Dynamics Considering the Structural Characteristics of Mortgage Interest," Sustainability, MDPI, vol. 13(19), pages 1-15, September.
    6. Cronin, David & McQuinn, Kieran, 2016. "Credit availability, macroprudential regulations and the house price-to-rent ratio," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 971-984.
    7. Adrian Mehic, 2022. "Regional aspects of immigration‐related changes in political preferences," Journal of Regional Science, Wiley Blackwell, vol. 62(5), pages 1386-1413, November.
    8. Basto, R. & Gomes, S. & Lima, D., 2019. "Exploring the implications of different loan-to-value macroprudential policy designs," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 66-83.
    9. Mustafa Ozan Yıldırım & Mehmet İvrendi, 2021. "Turkish Housing Market Dynamics: An Estimated DSGE Model," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 15(2), pages 238-267, May.
    10. Christophe André & Nikolaos Antonakakis & Rangan Gupta & Mulatu F. Zerihun, 2017. "Asymmetric Behaviour in Nominal and Real Housing Prices: Evidence from Advanced and Emerging Economies," Working Papers 201711, University of Pretoria, Department of Economics.
    11. Oskar Gustafsson & Mattias Villani & Pär Stockhammar, 2023. "Bayesian optimization of hyperparameters from noisy marginal likelihood estimates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 577-595, June.
    12. Roth, Markus, 2020. "Partial pooling with cross-country priors: An application to house price shocks," Discussion Papers 06/2020, Deutsche Bundesbank.

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    More about this item

    Keywords

    Bayesian VAR; House prices; Private consumption; Unemployment; Small open economy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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