Household Debt and Monetary Policy: Revealing the Cash-Flow Channel
with Martin Flodén, Jósef Sigurdsson and Roine Vestman (updated September 2017).
 PDF,  SSRN Working Paper,  CEPR Discussion Paper DP 12270,  Riksbank Working Paper No. 342
Abstract: We examine the cash-flow channel of monetary policy, i.e. 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 on Swedish households, we estimate substantial heterogeneity in consumption responses to a change in monetary policy through the cash-flow channel. Our findings imply that monetary policy has a stronger effect on real economic activity when households are highly indebted and have ARMs. For homeowners with a debt-to-income ratio of around 3 and ARMs, the estimated response is equivalent to a marginal propensity to consume of 0.5.
Abstract: We study the effects of stricter immigration policies on refugees’ outcomes. In 2002, Denmark prolonged the waiting period until asylum holders can apply for permanent residency from three to seven years. This implied a longer period of uncertainty about the long term prospects of staying in Denmark. We exploit the fact that the waiting time was completely determined by the date of the asylum application, giving rise to a discontinuity design. In addition, we formulate a simple search and matching model to derive predictions that can be tested in our empirical setting.
Work in progress:
Housing Market Outcomes in the Presence of Intergenerational Links
Description: Families matter for economic outcomes in different ways and they may affect individual behavior. This paper focuses on the presence of intergenerational links, acknowledging that parents make both inter-vivos transfers and leave bequests to their children. I develop an overlapping generations model with intergenerational links and (imperfect) altruism to study the importance of parents on the housing market. Motivated by previous empirical evidence of the prevalence of intergenerational transfers in connection to the housing market, the model is used to analyze dynamic household behavior. Furthermore, I study the effects of demand side oriented macroprudential policies, such as increased down payment requirements.
with Paula Roth.
Description: The perspective that high inequality and a low degree of risk sharing is important to spur innovative activities is contradicted by the fact that the Scandinavian countries, with relatively low inequality and generous welfare systems, are among the highest ranked countries in terms of innovation. We highlight that the theoretical foundations underlying this view rely on a crucial assumption, which is that effort choice is the key determinant of entrepreneurship, and argue that it is also relevant to consider the occupational choice. We first document some stylized cross country facts about innovation and the welfare state. Then we develop a simple overlapping-generations model to study whether risk sharing can facilitate innovation through entrepreneurial activity by limiting downside risk and affecting selection into entrepreneurship.
Documenting and Understanding the Interest Rate Bias of Swedish Households
with Jósef Sigurdsson and Roine Vestman.
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.