Inequality, debt, and crisis management

A six year project that aim to provide a novel framework for the conduct of macroprudential policy, funded by the Research Council of Norway.

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About Inequality, debt, and crisis management

Motivated by the rising economic inequality and the role of household debt and house prices during the 2008-2009 Great Recession, this project analyses how heterogeneity across households and firms interacts with (1) Macroprudential Policy and (2) Monetary Policy.

Inequality and incomplete markets are the hallmarks of the project. On the one hand, the project will use data to document empirical facts about how the current government policies – especially monetary policy and bank loan regulation – impact and are impacted by the presence of heterogeneity and inequality. The project will draw on high-quality Norwegian administrative data, which allows us to study deep and detailed empirical relationships that are not feasible to explore outside of Scandinavian countries due to lack of such data availability.

In light of the unfolding economic crisis caused by the Corvid-19 pandemic, the project will for the first time in history, be able to study details about how the behaviour of the entire distribution of individual households and firms as the economic crisis unfolds. The project has four parts. First, we will develop a new framework for macroprudential policy for household debt, based on introducing novel financial instruments which will simultaneously lower the cost and increase the effectiveness of debt regulation. We will also document who bears the house price risk and how unevenly this risk is distributed across households. Second, we will study how optimal moneary policy changes as the population becomes older. Third, we will explore the role of heterogeneity across firms in understanding how firms’ investments are influenced by monetary policy changes. This will shed new light on the aggregate investment dynamics. Fourth, we will develop a new framework to study monetary policy in light of nominal fiscal policy – resting on short-term fiscal budgets and incomplete markets.


Primary objectives

  • Provide a novel framework for the conduct of macroprudential policy.
  • Understand the empirical distribution of house price risk across households, and how it is influenced by household debt.
  • Identify how novel financial instruments can be added to the toolbox of banking and mortgage regulation so as to simultaneously lower the societal cost of mortgage regulation while at the same time increase the effectiveness of this regulation.
  • Develop the understanding of heterogeneity in the conduct of monetary policy, with an emphasis on understanding how ageing of the population changes the optimal policy, and on understanding how firm heterogeneity influences on how aggregate investments react to monetary policy.
  • Provide a novel quantitative framework for understanding how nominal fiscal policy interacts with monetary policy.

Secondary objectives

  • Contribute to the understanding of inequality and individual risk for households and firms in macroeconomics.


The project is funded by the Research Council of Norway under the FORSKER20 program with NOK 12 million over a three year period from January 2021 until December 2026.


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Published June 4, 2021 2:16 PM - Last modified Mar. 23, 2022 3:03 PM