Publications

The ongoing upswing in the Danish economy is solid, and the labour market pressure has increased. Growth in GDP is projected to rise to 2.3 per cent this year from 1.7 per cent last year, and the Danish economy will be in a boom in the coming years. So far, the upswing has been balanced. There is room for higher pressure on the economy during the boom, but overheating may occur suddenly and vigorously. The government should be prepared to initiate a fiscal tightening with a view to dampening growth in demand.

The current upswing in the Danish economy is solid. The growth in GDP is expected to increase to 2.3 per cent in 2017 from 1.7 per cent in 2016. This is an upward adjustment compared with Danmarks Nationalbank's March forecast. So far the recovery during the upswing has been balanced. Although the employment rises rapidly and the pressure on the labour market – especially in the construction sector – intensifies, there is a good chance that the balanced development can continue.

In the last six months, the Danish krone has been stable slightly on the strong side of the central rate vis-à-vis the euro. In the beginning of this period, Danmarks Nationalbank intervened modestly in the foreign exchange market. Danmarks Nationalbank has kept its monetary policy rates unchanged. Growth in total lending to households and the corporate sector has been moderate. The level of debt is still relatively high.

The share of construction firms reporting labour shortage has almost reached the level in the mid-00s. Experience testifies to labour shortage affecting all types of construction firms when labour market pressures are high. Further stimulation of demand for construction services would not be advantageous in the current cyclical position.

The effects on house prices of the Housing Tax Agreement are analyzed. From 2021, housing taxes will again dampen fluctuations in house prices and thus economic cycles in general. Towards 2021, the agreement stimulates real estate prices outside the big cities, while lowering prices, e.g. on apartments in Copenhagen. Finally, it is shown that for most home buyers there is no financial incentive to advance home purchases to before 2021 just to ensure a tax reliefe.

Strong economic growth in Greenland in 2016 and 2017 is to a large extent attributable to fisheries. Rising building and construction investments have also boosted growth in Greenland's economy. Despite the good times, the Greenlandic politicians need to address a number of major challenges. It is difficult to combine a sound economy with independence.

Time-to-maturity is introduced alongside leverage and asset volatility to explain equity volatility. The time-to-maturity can be interpreted as investors' views on when the firm will be liquidated and thereby relates to their view on the funding and solvency situation of the bank. Results for large European banks indicate that changes to the perceived time-to-maturity can indeed partly explain changes in observed equity volatility.

This paper investigates fire sales triggered by regulatory cliff effects induced by the loss of Capital Requirements Regulations (CRR) compliance on covered bonds.

This paper studies consumption and savings decisions of Danish households before and during the financial crisis as well as in the more recent years characterized by negative policy rates.

7-8 years after the onset of the financial crisis, it is still affecting the Danes’ consumption and saving patterns. The vast majority of Danish households reduced their consumption immediately after the onset of the financial crisis, but since then diverging patterns have been seen for net savers and net borrowers among the households.

The target for issuance of domestic government bonds in 2017 is maintained at kr. 65 billion in order to increase the outstanding volume of new bonds and ensure continuity in issuance policy. The target for T-bills at year-end is also maintained unchanged at kr. 30 billion.

In this paper we study what financial cycles are, what they look like in Denmark, and what their relationship is with the real economy. We show that medium term swings in house prices and credit should be used as an illustration of the financial cycle in Denmark.

Danmarks Nationalbank's semiannual analysis of financial stability shows that the largest banking groups achieved their best ever overall performance in 2016 and the banks' financial statements for the 1st quarter of 2017 also recorded sound profits. The banks' earnings are underpinned by temporary effects from very low loan impairment charges. The economic upswing, rising house prices and the continued low level of interest rates may lead to a general perception of low credit risk. This may intensify the pressure on the banks' credit standards. The large banks comply with the current capital requirements, but their capital base is lower than that of other Nordic banks. Results from Danmarks Nationalbank's accounts-based stress test show that, in a severe recession scenario, few of the systemic banks will have a small capital shortfall relative to the buffer requirements.

Bank earnings are record high. In some areas, current developments are similar to developments in the period up to the financial crisis. Large Danish banks have a lower capital base than that of other Nordic banks.

Danmarks Nationalbank's semiannual stress test of the Danish banking sector shows that the largest banks generally have capital in excess of the regulatory requirements in a severe recession scenario. However, some banks are close to drawing on their capital buffers, and a few tap into their buffers.

The capital ratios of Danish banks have increased in the years following the financial crisis. There are no adverse effects on GDP growth of banks' capital accumulation. This is the conclusion of Danmarks Nationalbank's analysis of banks' capital accumulation and GDP growth.

New primary dealer model is off to a good start with an improvement in liquidity. Price transparency has improved with narrower bid-ask spreads and increasing turnover in the interdealer market. All 11 primary dealers in Danish government bonds have quoted substantially tighter prices and the turnover is to a lesser degree than before concentrated on a few banks.

In this report, Danmarks Nationalbank presents the conclusions from its oversight of the Danish core payment and settlement systems as well as the most important payment instruments in 2016. Danmarks Nationalbank finds that the operational stability of the core systems and instruments has been satisfactory, and generally there has been ample liquidity in the systems for the settlement of payments. Danmarks Nationalbank has requested analyses whether the systems subject to oversight comply with the CPMI-IOSCO guidance on cyber resilience for financial market infrastructures. In addition, Danmarks Nationalbank’s oversight has focused on the management of risks arising from interdependencies between the payments infrastructure systems.

Danmarks Nationalbank has assessed Dankort, which is owned by Nets A/S, against the standards for card payment schemes established by the European Central Bank, ECB. Dankort's performance is stable with a high degree of availability, and Dankort fraud is low by international comparison. Danmarks Nationalbank's assessment contains recommendations to Nets A/S about, inter alia, more systematic knowledge management in relation to Dankort. Other recommendations concern expansion of Dankort-related risk analyses and strengthening the framework for decision-making and communication. Danmarks Nationalbank oversees the payment and settlement systems in Denmark in order to promote safe and efficient settlement of payments, securities trades, etc. Dankort is one of the solutions subject to this oversight.

The main objective of the International Monetary Fund, IMF, is to promote global economic and financial stability. A well-functioning IMF with sufficient funding is a prerequisite for solving this task. A strong IMF is a matter of Danish interest, as Denmark is a small, open economy and therefore highly dependent on and exposed to external conditions. Over the last decade Denmark, via Danmarks Nationalbank, has increased its total commitments to the IMF. Risks associated with loans to the IMF are extremely low due the high creditworthiness of the IMF.

The emergence of a house-price bubble can have sizeable implications for macroeconomic as well as financial stability. This paper investigates the dynamics of house prices in Denmark in order to identify emerging bubbles in due time. The empirical results identify developments in line with a price bubble from mid-2005 in Denmark. When applied to flats in Copenhagen, real price developments in 2015-16 indicate speculative behaviour but it cannot be ruled out that developments are driven by fundamental economic factors.

Danish exports to China are playing an ever increasing role. Accounting for just under 6 per cent of final demand for Danish exports, China is approaching the UK, Denmark’s fourth largest export market.

Danes prefer electronic payments, especially payment cards. In fact they use cards more than any other EU citizens. The electronic payments are supported by the payments systems which ensure that the payments are settled quickly and smoothly. E.g. it is possible to transfer funds in seconds. Denmark is a digital front-runner according to the European Commission's index. This is among other factors attributable to the targeted public-sector focus on digitisation.

What are the effects of introducing interest-only, flexible-rate mortgage contracts and a tax-freeze on housing wealth for the real- and financial economy? I study this within a medium-size DSGE-model with housing, banking and financial frictions, and the coexistence of flexible, fixed rate and interest-only mortgage contracts. I find that the introduction and the adaptation of flexible rate and interest-only mortgage contracts together with a freeze of taxation of the housing wealth can explain around 1/3 of the real house price gap in Denmark during the period 2004-06 and 15-40 per cent of the output gap. The household debt-to-GDP would have been almost constant instead of increasing by 20 percentage points. Finally, the analysis points to a more volatile economy after the implementation of the structural changes to the economy.

On 20 March 2017, the Danish central government will repay its last loan in foreign currency, totalling 1.5 billion dollars. Thus – for the first time in at least 183 years – the Danish central government has no foreign currency loans.

We investigate a non-parametric method to estimating marginal propensities to consume (MPC) using regression splines.

The Danish economy is in a balanced upswing and heading towards a moderate boom. Structural factors may dampen stronger dynamics and thus the growth outlook is more limited than previously. The growth in GDP is expected to increase to 1.6 per cent in 2017 from 1.1 per cent in 2016. The growth scenario in Danmarks Nationalbank's forecast assumes that labour supply will increase as a result of reforms already implemented. The growth scenario can be affected by a build-up of strong labour market pressure and the economy abroad including the US fiscal policy.

In recent months the Danish krone has been stable vis-á-vis the euro at a slightly stronger level than the central rate. In February, demand for kroner rose due to increased focus on uncertainty about the outcome of the upcoming elections in Europe. Hence, Danmarks Nationalbank intervened and sold kroner for kr. 4.7 billion in February. Danmarks Nationalbank has kept the rate of interest on certificates of deposit at -0.65 per cent since January 2016. Money market rates in Denmark and the euro area have been stable for an extended period of time. Fluctuations in short-term Danish money market rate have been reduced after Danmarks Nationalbank's introduction of daily purchases and sales of certificates of deposit.

Danmarks Nationalbank's accounts for 2016 show a profit of kr. 3.9 billion corresponding to an increase of kr. 0.3 billion compared to the previous year. The increase mainly reflects capital gains on the gold stock, income from sales of fixed assets and gains on the financial portfolios. Exchange rate adjustments and deposits at negative interest rates have a downward impact on the profit. Danmarks Nationalbank transfers kr. 845 million to the central government, while the rest of the profit is transferred to Danmarks Nationalbank's General Reserves.

The Danish economy is in a balanced upswing and heading towards a moderate boom. Structural factors may dampen stronger dynamics and thus the growth outlook is more limited than previously. The growth in GDP is expected to increase to 1.6 per cent in 2017 from 1.1 per cent in 2016. The growth scenario in Danmarks Nationalbank's forecast assumes that labour supply will increase as a result of reforms already implemented. The growth scenario can be affected by a build-up of strong labour market pressure and the economy abroad including the US fiscal policy.

Danmarks Nationalbank's accounts for 2016 show a profit of kr. 3.9 billion corresponding to an increase of kr. 0.3 billion compared to the previous year. The increase mainly reflects capital gains on the gold stock, income from sales of fixed assets and gains on the financial portfolios. Exchange rate adjustments and deposits at negative interest rates have a downward impact on the profit. Danmarks Nationalbank transfers kr. 845 million to the central government, while the rest of the profit is transferred to Danmarks Nationalbank's General Reserves.

Statistics Denmark’s revised GDP figures published last autumn provide a more complete picture of the Danish economy as being in an upswing since 2012. However, the new figures do not change Danmarks Nationalbank’s assessment of the state of the Danish economy to any significant extent. Danmarks Nationalbank’s forecasts of GDP growth after the 2008-09 downturn was accurate. The GDP revision emphasises that assessments of current developments in the Danish economy cannot be based merely on GDP.

The core financial sector participants in Denmark have strong focus on cyber security, but there is room for improvement. That is the main conclusion of Danmarks Nationalbank's and the Danish Financial Supervisory Authority's questionnaire survey.

This paper provides a detailed description of Danmarks Nationalbank's current methodology for estimating potential output and output gaps in the Danish economy.

The paper discusses how to measure bank risk based on market data, the relationship between risk measures and bank funding costs and how increased funding costs can be incorporated in a stress test.

Denmark's central government debt amounted to 23 per cent of GDP at the end of 2016. The debt thus remained low, and Denmark retained the highest possible credit rating with a stable outlook. The central government's financing requirement was met at record-low yields in 2016. The central government issued nominal bonds at an average yield to maturity of 0.1 per cent and an average maturity of 7 years. Demand for Danish government bonds in the auctions was high. In line with the strategy, government bonds totalling kr. 63 billion were issued via auctions and tap sales. The central government played an active role in the secondary market to support liquidity in the Danish government bond market, which improved compared with 2015.

Current economic and monetary trends, 4th quarter 2016; Regional aspects in the housing market; The pension sector as a foreign exchange market participant; Effects of Danmarks Nationalbank's interventions in the foreign exchange markets.

From 1 April 2017, the central government is introducing payments to banks that quote prices on a current basis and act as distribution channels for Danish government bonds, i.e. function as primary dealers. Total payments will amount to a maximum of kr. 25 million p.a. The banks making the greatest efforts will receive the largest payments. At the same time, the requirements for primary dealers will be enhanced.

Danmarks Nationalbank’s calculations show that the price of solving the too-big-to-fail issue for the Danish mortgage banks is low. Introduction of a minimum requirement for own funds and eligible liabilities, MREL, corresponding to 8 per cent of the mortgage banks’ total liabilities and own funds would justify an increase of administration margins by between 0.02 and 0.11 percentage point. An MREL would allow the mortgage banks to write down up to 8 per cent of their liabilities and own funds. Hence, the Resolution Fund can be used in the event of very large losses.

Today Danmarks Nationalbank publishes a response to the consultation on the European Commission’s proposal to revise the requirements for credit institutions. Danmarks Nationalbank recommends that mortgage institutions are subject to the same regulation that applies to banks.

The 12 January 2017 marks the 30th anniversary of the Danish central rate. Looking back, Denmark's fixed exchange rate policy has turned out to be very resilient, even through economic and financial crises along the way.

Net interest income is under pressure from low interest rates. Earnings are still being lifted by large reversals of previous years' loan impairment charges. The current combination of economic growth and rapidly increasing house prices in the cities intensifies the competition for customers.

The target for sales of government bonds and T-bills in 2017 is kr. 65 billion and kr. 30 billion, respectively, which is unchanged from 2016. The central government's issuance in 2017 will predominantly be in 2-year and 10-year nominal securities. The government debt policy is still focused on supporting liquidity by being active in the secondary market.

News from Danmarks Nationalbank: Higher indebtedness of homeowners in major cities; Risk of price falls for owner-occupied flats in Copenhagen; Prosperity growth in Denmark is among the highest

Danmarks Nationalbank owns and operates the only system for real-time settlement of large, time-critical payments in Danish kroner. The central position of Kronos in the financial infrastructure entails high safety and efficiency requirements. This report provides a detailed description of Kronos' observance of the international principles for financial market infrastructures.

This paper explores the significance of overoptimism on house price developments in Denmark. The results indicate that house price developments historically have been partly driven by sentiments decoupled from underlying economic fundamentals, especially during strong house price booms.

Current economic and monetary trends, 3rd Quarter 2016; House price bubbles and the advantages of stabilising housing taxation; Geographical job mobility and wage flexibility; What is driving the weak world trade?; Current trends in the faroese economy.

The financial crisis has moved attention to the modeling of financial frictions and banks in DSGE models. The preceding housing boom put focus on the need to incorporate developments in the residential sector, including house prices. This paper documents an estimated DSGE model of the Danish economy with financial frictions, banking and a construction sector.

The Danish Payments Council has published a report about non-banks in the payments market in Denmark and abroad. Non-banks comprise a wide range of firms, spanning from small fintech start-ups providing high-tech payment services to large, global firms deciding to include payments in their business area. Among other things the report concludes, that so far, non-banks have gained only a limited foothold in the payments market in Denmark, but especially some of the global firms has the greatest potential to become significant players in the Danish payments market. New Danish non-banks focus mainly on services linked to payments. This could e.g. be solutions to replace paper receipts and slips, digital checkout systems and e-invoices that are automatically read into the payer's ERP system.

'In brief' is the conclusion of the Danish Payments Council's report on non-banks in the payment market