Working Paper presents research work by both Danmarks Nationalbank’s employees and our partners. The series is primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

Financial sector

Working Paper: What are the effects of changes in taxation and new types of mortgages on the real economy? - The case of Denmark during the 00's

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.