Household Debt and Monetary Policy: Revealing the Cash-Flow Channel
with Martin Flodén, Jósef Sigurdsson and Roine Vestman (updated August 2018).
 PDF,  SSRN Working Paper,  CEPR Discussion Paper DP 12270,  Riksbank Working Paper No. 342
Abstract: We examine the effect of monetary policy on spending when households hold debt linked to short-term rates, such as adjustable-rate mortgages (ARMs). Using registry-based data, which is broadly representative of Swedish households, we find substantial heterogeneity in consumption responses to changes in monetary policy. We find that consumption responds more strongly to changes in interest rates for households with high debt than for households with little or no debt. Moreover, households with ARMs appear to be more interest-rate sensitive than households with fixed-rate mortgages. Our results are consistent with hand-to-mouth behavior and an important transmission mechanism of monetary policy through the cash-flow channel.
Should I Stay or Must I Go? Temporary Refugee Protection and Labor-Market Outcomes
with Birthe Larsen and Elisabet Olme (updated August 2018).
 PDF,  Copenhagen Business School Working Paper 5-2018
Abstract: We study a Danish reform in 2002 that lowered the ex-ante probability of refugees receiving permanent residency by prolonging the time period before they were eligible to apply for such residency. Adherence to the new rules was entirely determined by the date of the asylum application and the reform was implemented retroactively. We formulate a simple search and matching model to derive predictions that can be tested using our data. Using registry based data on individuals in Denmark, we then study the effects on educational and labor-market outcomes and find that the reform significantly increased the enrollment in formal education, especially for females and low-skilled individuals. In terms of employment and earnings, the coefficients are in general negative but insignificant. Other outcomes of interest are also studied.
Work in progress:
Portfolio and Housing Decisions in the Presence of Intergenerational Links (draft available upon request).
Description: There is ample suport for the idea that parents matter for the housing market choices of their children. Despite this, our understanding of the effects of these intergenerational links remains limited. I set up a partial equilibrium overlapping generations model with intergenerational links and study housing and portfolio decisions. I use the model to characterize individual behavior, as well as behavioral responses to a change in borrowing conditions. In steady state, the main determinant of both children’s and parents’ behavior is parental wealth and stricter borrowing conditions have a limited effect. During a transition with positive house price growth, however, the difference between parents who are homeowners and renters (and between their children) is amplified and stricter borrowing conditions have a stronger impact on behavior.
with Paula Roth (draft available upon request).
Description: We study the role of risk-sharing in facilitating innovation. Studying entrepreneurship and innovation entails modelling an occupational choice and an effort choice. Risk-sharing may in crease the number of individuals who become entreprenerus by limiting the downside risk. The effort of entrepreneurs may, however, be hampered by high risk-sharing if this limits the returns faced by successful entrepreneurs relative to unsuccessful entrepreneurs. We construct a theoretical model where risk-sharing may be private or public, i.e., provided by the welfare state by means of taxation. We show that the level of risk-sharing matters for the characteristics of entrepreneurs. Morever, high taxes, which imply high equilibrium benefits paid out to entrepreneurs, encourage entrepreneurship but discourage effort.
Description: We document an interest rate bias among individuals observed both in Swedish registry data and in a household survey. When asked about interest rate expenses, households with higher debt-to-income (DTI) systematically underestimate their expenses compared to the truth observed in the registry data for the same time period. For low DTI households, the bias goes the other way and they instead overestimate their expenses. One hypothesis is that households, when asked to estimate this expense, use a combination of their own expenses and some average in the population. This would be consistent with the pattern of the bias that we observe in the data. Here, we aim to estimate the bias and to explain it.
Indebtedness in various age groups in Sweden (with Johan Eng Larsson and Kerstin Hallsten at Sveriges Riksbank).  Staff Memo March 2018.
Description: We analyze indebtedness across the age distribution in Sweden to understand the development of aggregate indebtedness (measured as debt-to-income (DTI)). During the last years we have seen an increase in aggregate indebtedness among Swedish households. Since people of different ages are more or less economically vulnerable, the distribution of debt across different age groups has implications for financial stability. Here we analyze this topic using detailed data on individual mortgage holders in Sweden covering the time period 2010-2016.
The Indebtedness of Young Households (with Johan Eng Larsson and Peter van Santen at Sveriges Riksbank). Forthcoming.
Description: In this memo, we specifically study young mortgage holders and consider the development of parental co-signing.