Anticipation Effects in Macroprudential Policies: Evidence from a Natural Experiment

Project Start:01/2019
Researchers:Claes B├Ąckman, Tobin Hanspal, Josefin Kilman
Category: Household Finance
Funded by:LOEWE

Rising global house prices and debt levels have sparked concerns for macroeconomic stability. To combat these concerns and reduce systemic risk policymakers are increasingly turning towards macroprudential policies, with the aim of improving household resilience in the face of macroeconomic shocks (Kuttner and Shim 2016). Even as these policies are being introduced, however, there is little research that credibly estimates their impact and effectiveness (Bernanke, 2015). This is especially relevant for regulation that directly affect households, such as amortization requirements, where the impact is theoretically ambiguous and empirical evidence is scarce.


Moreover, many policies attempt to change behavior in a way that households may not respond to. For instance, an amortization requirement forces households to save by repaying their mortgage, something they may chose to avoid. This introduces a strategic aspect to household decisions, where they may respond counter to the intention of original the policy. In this project, we provide evidence on how strategic behavior in response to macroprudential policies can affect macroeconomic outcomes. To do this, we will exploit a natural experiment that came out of the process of introducing an amortization requirement in Sweden.


In April 2015 the regulatory agency responsible for financial stability in Sweden, Finansinspektionen, announced that households would be required to amortize on new mortgages after August 1st of that year. However, the requirement had to be withdrawn following a court ruling stating that Finansinspektionen lacked legal authority to implement such requirement. Importantly, this ruling was unexpected and unrelated to economic fundamentals. We therefore use the introduction and subsequent withdrawal of the amortization requirement as a natural experiment to investigate how household behavior affect housing markets. Our study will provide novel evidence on the response of housing markets to macroprudential policies. Although these tools are increasingly popular as a way to increase financial stability, the scarce empirical evidence on their impact make it challenging to evaluate their success.