Working paper: Modeling frailty correlated defaults with multivariate latent factors

It is typically assumed within corporate default modeling that the covariates have a linear effect on the log-hazard scale, no interactions, and that there is only a single additive latent factor on the log-hazard scale. Using a sample of US corporate firms, we show in this paper that these standard assumptions are too strict and that they matter in practice. We propose instead a frailty-model that relaxes these assumptions and takes into account time-varying covariates, while being able to provide forecasts for arbitrary portfolios.

Stricter lending requirements have made homeowners more robust

Danish authorities have implemented a number of regulations targeting mortgage financing. The new regulations provide incentives for the most indebted homeowners to increase amortization on their mortgages thereby increasing the robustness of the housing market. As the new rules have been implemented, mortgage credit institutions have managed to increase their issuance of new mortgages to first time buyers as well as older existing home owners remortgaging.

Slightly tighter credit standards

In Danmarks Nationalbank's lending survey for the 4th quarter 2019, 4 of the 17 credit managers in the surveyed banks report that they have tightened the credit standards slightly compared to last quarter. When the credit managers' answers are weighted with the market share of their respective bank, the credit standards for lending to corporate and private customers on average are tightened by approximately -6 and -3, respectively (where 0 corresponds to unchanged credit standards and -50 corresponds to all the banks having tightened slightly).

Homeowners reduce consumption when the non-amortisation period ends

Homeowners’ with interest-only mortgages reduce consumption by an average of 3 per cent of income when amortisation starts if they are unable to roll over their interest-only loans into new ones as they might have expected to do. This corresponds to a reduction in expenditure of kr. 14,000 per homeowner per year. This appears from a Working Paper prepared by Henrik Yde Andersen, Senior Economist, Alessia De Stefani, Research Economist and Stine Ludvig Bech, Senior Economist.

Working paper: Mortgage choice and expenditure over the lifecycle: evidence from expiring interest-only loans

We study how homeowners’ consumption responds to the beginning of the amortization period on interest-only mortgages. In response to an average increase in mortgage instalments worth 9 per cent of annual income, consumption drops by 3 percent of income, in the year when amortization starts. This expenditure cut is persistent, but only affects a small subset of borrowers with high leverage ratios. These borrowers might have been unable to rollover their interest-only loans into new ones.

Working paper: Banking panic risk and macroeconomic uncertainty

We show that systemic risk in the banking sector breeds macroeconomic uncertainty. We develop a model of a production economy with a banking sector where financial constraints of banks can lead to disastrous banking panics. We find that a higher probability of a banking panic increases uncertainty in the aggregate economy. We explore the implications of this banking panic-driven uncertainty for business cycles, asset prices and macroprudential regulation. Banking panic-driven uncertainty amplifies business cycle volatility and increases risk premia on asset prices. A countercyclical capital buffer lowers both the probability of banking panics and aggregate uncertainty.

Price increases add to foreign owner ship of C25 stocks

2019 was a good year to own C25-stocks. The foreign owner share of C25-stocks increased to 57 per cent in November, corresponding to kr. 1,426 billion. The increase is due to the fact that foreign investors own the stocks that have had the largest price increases – especially the Novo stock where foreign investors own 73 per cent. Foreign ownership share of C25 stocks has thus increased again after a few years of decline. Foreign investors' stocks have had a total value increase of kr. 282 billion. By comparison, Danes' C25 stocks have risen by kr. 167 billion.

The Danish pension sector buys European bonds

The Danish pension sector has bought foreign bonds for kr. 129 billion since January 2018. The acquisition of foreign bonds consists mainly of bonds from the Euro area, especially Irish, French, and Italian government bonds. Additionally, the pension sector has purchased Swedish state and Hypotek bonds. Conversely, the pension sector has sold American and German government bonds.

The Danes' deposit rate approaches 0 per cent

The interest rate on Danish customers' ordinary deposits, which can be immediately withdrawn or used for payments, has been reduced further in the past year. The rate is approaching 0 per cent on average, when you disregard loan-related deposits.

Fixed-rate lending growth throughout the country

In the recent year, the Danes' mortgage loans have increased by 3.8 per cent. The relatively moderate growth in lending covers a large increase of 14.0 per cent in fixed-rate loans and a reduction of 3.7 per cent in variable-rate loans. Fixed-rate loans now take up 46.7 per cent of the total loans of kr. 1,667 billion.

Foreign Exchange and Liquidity and Monthly Balance Sheet, December 2019

​In December 2019, the foreign-exchange reserve decreased by kr. 5.3 billion to kr. 435.4 billion.

Denmark's international investment position is growing

Denmark's international investment position increased by kr. 144 billion in the third quarter of 2019. This is the ninth consecutive quarter with an increase. The increase is mainly due to the large current account surplus and increases in value of the Danes' foreign assets.

The Danes' net wealth 6th largest in the EU

Danish households' net financial wealth – the difference between their financial assets (e.g. pension and deposits) and liabilities (debt) – was kr. 4,101 billion at the end of the second quarter of 2019. The net wealth corresponds to 177 per cent of the Danish gross domestic product, GDP. This ranks Danish households sixth only surpassed by households in the UK, the Netherlands, Belgium, Sweden and Italy.

Low prevalence of zombie firms in Denmark

Weak firms, "zombies", account for less than 1.5 per cent of Danish firms, which is low compared with other countries. Interest rates have been falling for several years, but the risk of remaining a zombie has not increased. This indicates that lower interest rates have not resulted in a higher prevalence of zombies. Moreover, there are no indications that banks have eased conditions more for zombies than for other firms.

Central government borrowing strategy 2020

The target for issuance of domestic government bonds and T-bills in 2020 is kr. 75 and kr. 30 billion, respectively. This is unchanged from 2019. Issuance will be focused in the 2- and 10-year maturity segments. A new 30-year nominal bond maturing in 2052 will be opened in the 1st half of the year.

Globalisation affects measures of wage competitiveness

Danish firms increasingly have goods processed abroad and sell them directly from abroad. This allows for a higher degree of specialisation, as well as capacity expansion. However, when firms outsource production, Danish value added is to some extent decoupled from use of Danish labour. This is a challenge when measuring wage competitiveness, so in this analysis adjustment is made for Danish firms' activities abroad. That provides a more accurate impression of the competitiveness of physical production in Denmark.

Working paper: What is real and what is not in the global FDI network?

Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with enormous inward and outward investment positions. This paper uses several new data sources to estimate the global FDI network while disentangling real investment and phantom investment and allocating real investment to ultimate investor economies. We find that phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40 percent of global FDI.

Visiting PhD student fellowship

Danmarks Nationalbank invites applications for visiting PhD student fellowships. Visiting fellows stay at the bank for the duration of 6 to 12 months to work towards the completion of their PhD dissertation.

Resident PhD student fellowship

Danmarks Nationalbank invites applications for resident PhD fellowships. Resident PhD fellows are enrolled in a PhD program and are a part of the Danmarks Nationalbank research unit, typically for the duration of their PhD studies.

New quarterly insurance and pension sector statistics

The Danish insurance and pension sector (I&P) manage a significant share of the Danish wealth. I&P-corporations assets exceeds 200 per cent of the Danish GDP at the end of 3rd quarter of 2019, and the balance sheets are among the biggest in the world relative to the size of the Danish economy. These figures are available in Danmarks Nationalbank's newly published quarterly statistics on insurance and pension.

Foreign Exchange and Liquidity and Monthly Balance Sheet, November 2019

​In November 2019, the foreign-exchange reserve decreased by kr. 1.9 billion to kr. 440.7 billion.

Speech by Governor Lars Rohde at Investment and Pensions Europe conference 2019

Speech by Governor Lars Rohde at Investment and Pensions Europe conference, 3 December 2019.

Speech by governor Lars Rohde at the annual meeting of Finance Denmark 2019

Speech by governor Lars Rohde at the annual meeting of Finance Denmark 2 December 2019.

Climate change can have a spillover effect on financial stability

This analysis is a first step in Danmarks Nationalbank's efforts to understand how climate change may affect macroeconomic and financial stability. Climate change may pose risks to the financial sector and financial stability. Financial institutions should understand and incorporate these risks into their risk management, and financial regulation should reflect the actual risks. A sound financial sector can contribute to the transition to a green economy by ensuring continued allocation of capital.

The Industry's foreign subsidiaries contribute to current account surplus

Industrial Group's investments in foreign subsidiaries amount to kr. 558 billion in 2018 indicating that the industry is largely organized globally. Relatively few large groups are behind the majority of the investments.

Low coupon rate for more than half of the fixed-rate mortgage bonds

The 30-year fixed-rate convertible mortgage bonds amount to kr. 941 billion, of which 51 per cent in October have a coupon rate of 1.5 per cent or less. The trend towards bonds with lower coupon rates continues in the beginning of next year as more Danes will convert their mortgages into a loan with a lower coupon rate in January 2020.

Foreign investors maintain a large share of Danish mortgage bonds

In 2019, foreign investors bought many Danish 30-year mortgage bonds with a coupon rate of up to 1.5 per cent. They now own bonds with a low coupon rate for kr. 197 billion, corresponding to 41 per cent. The purchases should be seen in the light of the fall in market interest rates during the period and the refinancing boom which contributed to prepayment of many of the foreign investors' existing bonds with higher coupon rates. Foreign ownership of all 30-year mortgage bonds is largely unchanged at approximately 37 per cent.

Lower excess capital adequacy for the banks

The distance between capital requirements and own funds has been reduced for the largest Danish credit institutions in recent years. The lower excess capital adequacy implies increasing capital requirements, while capitalisation has been stable, the analysis Financial stability from Danmarks Nationalbank shows.

Lower interest income from households to banks

The banks' net interest income on loans and deposits to households was kr. 1.4 billion in October 2019 and kr. 16 billion over the past 12 months. Income has been steadily declining since 2012, where income was at kr. 22 billion.

21 per cent of household debt relates to sole proprietorships

At the end of October, Danish households' total bank and mortgage debt amounted to kr. 2,474 billion corresponding to 110 per cent of Danish GDP. The debt of the household sector covers debt of private customers and sole proprietorships. The bulk of the debt, kr. 1,950 billion (79 per cent), are primarily related to private customers, while the remaining kr. 524 billion (21 per cent) is related to sole proprietorships.

Financial Stability - Lower excess capital adequacy for the banks

The largest credit institutions’ results remain high, underpinned by low loan impairment charges and income from mortgage loan refinancing. Several institutions have launched initiatives aimed at securing future earnings. The largest credit institutions have reduced excess capital adequacy, and for a few it is low. The institutions should reconsider their capital targets to ensure an appropriate distance between capitalisation and capital requirements.

Banks are less resilient to stress

Danmarks Nationalbank conducts a stress test of the Danish banking sector twice a year. The stress test shows that some systemic banks breach their risk-based capital requirements in a severe recession scenario. The analysis further shows that the systemic banks will have to issue new MREL in substantial amounts in order to satisfy their requirements under stress.

Large returns in the first three quarters of 2019

In the three first quarters of 2019, the insurance and pension sector (I&P) returns totaled kr. 479 billion. This corresponds to a year-to-date, return on investment of just below 13 per cent. These figures are available in Danmarks Nationalbank's newly published quarterly statistics on insurance and pension.

Insurance and pensions twice the size of GDP

By the end of the third quarter of 2019, the balance of the insurance and pensions sector (I&P) totaled kr. 4,773 billion, which is approximately twice the size of Denmark's gross domestic product. Life insurance companies have, as the largest part of the sector, a total balance of kr. 2,663 billion, while the total balance of pension funds amount to kr. 1,938 billion. General insurance has a balance of kr. 172 billion. These figures are available in Danmarks Nationalbank's newly published quarterly statistics on insurance and pension.

Women have lower pension wealth than men

There is a significant difference in the pension wealth of men and women. The Danish women's pension wealth amounted to almost kr. 796,000 on average at the end of 2018. This is 25 pct. less than the average pension wealth of men equal to just over kr. 1,065,000. However, there are signs indicating that the difference is diminishing.

Working paper: Occupation-industry mismatch in the cross-section and the aggregate

I define occupations that are employed in more industries as “broader” occupations. I study the implications of broadness for mismatch of the unemployed and vacancies across occupations and industries. I empirically find that workers in broader occupations are better insured against industry-specific shocks. I build a general equilibrium model that uses occupational broadness as a microfoundation of mismatch. The model matches the empirical findings but predicts that mismatch cannot significantly contribute to aggregate fluctuations in the unemployment rate.

Pension companies will have large liquidity needs if interest rates rise

Pension companies' need for liquidity will increase when the sector has to meet the requirement for central clearing of interest rate swaps and other derivatives by 2023. Pension companies should prepare so as to be able to manage cash variation margin requirements at all times. In the event of substantial interest rate increases, the companies will need large amounts of cash to be posted as variation margin the following day.

Large corporate trades increase direct investments abroad

Danish companies increased their direct investments abroad by kr. 56 billion in the 3th quarter of 2019. The increase is mainly due to the fact that Danish DSV bought the Swiss transport company Panalpina for kr. 35.1 billion.

The Faroese economy - Labour market squeezed by very low unemployment

The Faroese economy has been in an upswing since 2014. Unemployment is now very low, and there is a risk that this may lead to overheating of the economy. The central government can increase the stability of the economy by pursuing countercyclical fiscal policy. The ageing of the population means that in the long term tax revenue will not be able to match government expenditure. This can be addressed by implementing reforms now.

Working paper: Liquidity Constraints in the U.S. Housing Market

We show that U.S. housing wealth is very illiquid despite all the instruments for extracting home equity available to homeowners. We come to this conclusion by studying the implications of liquidity constraints in a quantitative life-cycle model in which we explicitly account for key institutional details of the U.S. housing and mortgage markets. We find that mortgage market frictions that prevent homeowners from tapping into home equity are sizeable and that most homeowners keep their consumption low for precautionary reasons.

Working Paper: Risk and risk weights

The paper studies the relationship between the riskiness of banks' assets and their average risk weight. Risk weights explain about half of the variation in projected credit losses in the 2018 European Banking Authority stress test, and show a clear relationship with estimates of banks' asset volatilities. However, risk weights do a worse job of explaining future credit losses than do asset volatilities, especially for banks using internal models.

Foreign Exchange and Liquidity and Monthly Balance Sheet, October 2019

​In October 2019, the foreign-exchange reserve decreased by kr. 2.3 billion to kr. 442.7 billion.

Prices are rising less than many people think

Prices of food, clothing, restaurant meals, laundry, rent and other elements of household consumption are rising much less than many Danes think. In other words, the Danes overestimate the rate of inflation – but not as much as people in EU do on average. This appears from a Working Paper prepared by Kim Abildgren, Chief Adviser, and Andreas Kuchler, Senior Economist, from Danmarks Nationalbank.

Working Paper: Revisiting the inflation perception conundrum

The level of inflation perceived by Danish households persistently exceed observed inflation levels measured by official Consumer Price Indices. Accounting for even several of the factors usually put forward to explain the overestimation bias can only reduce it slightly. Food prices carry a larger weight in perceived inflation than in the official CPI, and we find clear seasonal effects in the inflation perception bias. The bias is also reflected in the households' expectations of the future inflation level, but we find a much smaller bias in the expectations regarding future changes in inflation rates.

Greenlandic economy - Strong growth, but reforms are required

Growth has been high for some years, a trend that is set to continue. This is mainly attributable to fisheries. Unemployment is very low, and large-scale airport investments in the coming years will increase pressures in the labour market. Despite government surpluses and modest government debt, there is a need to develop a broader business sector and strengthen government finances substantially in the coming years.

Quintupled wealth in 20 years

The market value of Danish households' investment fund shares is now 5.2 times what it was by the end of year 1999.

High return on foreign portfolio shares in 2019

Danish investors' foreign listed portfolio shares had a return of 17.7 per cent in the first nine months of 2019. Excluding exchange rate changes, the return was 15.3 per cent. In comparison, their Danish equities produced a return of 15.1 per cent.

High return on Danish bonds in 2019

Despite the historically low interest rates, the Danish bond market of kr. 4,309 billion has yielded a return of 3.2 per cent so far in 2019.

One fifth of corporate deposits are in currency

Danish companies' total deposits with banks are kr. 309 billion at the end of September 2019. One fifth of the deposits are in foreign currency, corresponding to kr. 60 billion. Many Danish companies, either directly or through foreign subsidiaries, have activities abroad in foreign currency. They may therefore need to be able to both withdraw and deposit amounts in accounts in different currencies.

The average mortgage rate is now below 1 per cent

The average effective interest rate on Danish customers' mortgage debt has been decreasing for a long time. In September, it was down another 0.07 percentage point and reached 0.93 per cent. For the first time ever it is below 1 per cent on average. Interest incl. administration fee are on average 1.76 per cent which is also a new historic low.

Capital buffer must be ahead of the financial cycle

If you want to hit a moving target, you must aim ahead of the target, not at its current position. This principle applies just as well when playing dodgeball at school as when shooting down enemy missiles in wartime. It also applies when policymakers determine the banks' capital buffer level required to weather hard times. They must look at the direction in which the financial development is moving, rather than at its current state.

Working Paper: Ahead of the Cycle

The paper describes how to conduct macroprudential policy in an environment where economic indicators move in a cyclical fashion, policy works with a lag, and there are adjustment costs to changing policy. It shows that policy instruments such as the countercyclical capital buffer should be set not only based on the present state of the cycle, but also on where the cycle is heading.

Speech by Governor Lars Rohde at SUERF conference in New York

Speech by Governor Lars Rohde at SUERF conference in New York, 16 October 2019.

Foreign direct investment passes through transit countries

Foreign direct investment, FDI, in Denmark often passes through the Netherlands and Luxembourg as transit countries. If the statistics are compiled by the country that ultimately controls the investments, the USA is the largest investor country. The USA ultimately accounts for almost 30 per cent of FDI in Denmark, which totalled kr. 700 billion in 2018.

Foreign direct investment often passes through transit countries

Nearly half of the kr. 700 billion of foreign direct investment, FDI, in Denmark passes through transit countries before reaching Denmark. The Netherlands and Luxembourg are the largest transit countries.

Betalingsservice Assessment

Danmarks Nationalbank has assessed Betalingsservice, which is owned and operated by Nets, against the standards for direct debit schemes established by the European Central Bank, ECB. Danmarks Nationalbank's overall assessment is that Nets has ensured that Betalingsservice extensively complies with the ECB requirements. At the same time, Danmarks Nationalbank has recommendations and remarks on how to strengthen Nets' management and operation of Betalingsservice. Inter alia, Danmarks Nationalbank recommends that Nets strengthen the compliance area and formalise its requirements for the critical suppliers' risk management. It is also remarked that the transparency of the fee structure will be enhanced if the firms clearly show their own fees to the consumers. Nets can be conducive to ensuring this. Danmarks Nationalbank oversees the payment and settlement systems in Denmark in order to promote safe and efficient settlement of payments, securities trades, etc. Betalingsservice is one of the solutions subject to this oversight.

Danmarks Nationalbank's comments on the Danish Economic Council's discussion paper, Autumn 2019

Speech by Governor Per Callesen at Green Climate Fund's 2019 Private Investment for Climate Conference, Republic of Korea

Speech by Governor Per Callesen at Green Climate Fund's 2019 Private Investment for Climate Conference, Republic of Korea, 8 October 2019.

Lower demand and increased competition

In Danmarks Nationalbank's lending survey for the 3rd quarter 2019, 5 of the 17 surveyed banks report that they have experienced lower loan demand from corporate customers compared to the previous quarter. In particular, the demand from new corporate customers has been lower, according to the banks. The banks report that lower demand applies to large as well as small and medium-sized corporate customers. At the same time, the banks report increased competition for these customers.

Working Paper: Modeling Persistent Interest Rates with Volatility-Induced Stationarity

We propose a new model for the term structure of interest rates, which embraces the extreme persistence observed in interest rate data. This is achieved by introducing so-called volatility-induced stationarity. We apply the model to U.S. Treasury bond yield data and show that volatility-induced stationarity improves estimation of term premia and forecasting of interest rates compared to existing models.

The market can see through media framing

Stock market investors react only on the objective facts and not the spin in media articles, a new working paper from Danmarks Nationalbank shows.

Working Paper: Seeing Through the Spin: The Effect of News Sentiment on Firms' Stock Market Performance

We show that Stock market investors react only on the objective facts and not the spin in media articles. We use natural language processing tools to compute the tone of 288 thousands articles written by Reuters between 2000 and 2018, and show that it predicts the short-term stock market performance of companies. However, by exploiting a combination of unsupervised machine learning and econometric techniques, we show that this effect is only due to the informational content of the article, and not the framing of that article. The market sees through media spin and can filter informational content from irrelevant tone.

Speech by Governor Lars Rohde at the anniversary conference on Banking & Supervision

Speech by Governor Lars Rohde at the anniversary conference on Banking & Supervision, 3 October 2019.

Foreign Exchange and Liquidity and Monthly Balance Sheet, September 2019

​In September 2019, the foreign-exchange reserve decreased by kr. 1.6 billion to kr. 445.0 billion.

More Danes carry the pension risk themselves

The Danes' total retirement savings amounted in the second quarter to kr. 3,661 billion as a consequence of large returns on stocks, bonds and interest rate derivatives. Movements in financial markets affect the pension assets more directly today than what has been the case previously.

International investment position sets new record

Denmark's international investment position, IIP, increased by kr. 176 billion in the 2nd quarter of 2019 and thereby reached a new record of kr. 1,616 billion. The increase was caused by the balance of payments surplus and value adjustments. Denmark's IIP constitutes 73 per cent of GDP.

Fixed-rate mortgage bonds at the highest level in 10 years

Fixed-rate mortgage bonds amount to 43 per cent of the Danish mortgage-credit market, totaling kr. 2,998 billion in August 2019. This is the highest share in 10 years.

Large investments in highly-rated bonds

Danish investors have bought foreign bonds for DKK 95 billion since January 2019. The majority of the purchases are bonds with a high credit rating (investment grade), including government bonds from the US and the Euro area as well as highly rated bank bonds from Sweden and Germany.

Who pays negative rates in the banks?

Interest rates have been low for a long time on a global scale, and banks are increasingly passing on the negative interest rates to their deposit customers. The banks have reacted at different rates, and the transaction affects different coustumer groups at differenct paces.

Record number of remortgagings and increased lending

The falling interest rate level in 2019 has meant that a record number of borrowers have converted their mortgage loans. Up to and including August this year, the mortgage institutions have disbursed loans to the Danes for a total of kr. 284 billion. The Danes' total mortgage loans have grown by kr. 63 billion for the same period.

Speech by Governor Lars Rohde at the CFA Society Denmark Conference 2019

Speech by Governor Lars Rohde at the CFA Society Denmark 1st Nordic Investment Conference 19 September 2019

Outlook for the Danish economy - Slightly lower growth in the coming years

The Danish economy has been in a boom phase in recent years. Over time, weaker growth abroad will affect the Danish economy, and prospects are for slightly lower growth rates over the coming years. The labour market is showing the first signs of a slowdown. The boom has evolved without considerable imbalances building up, and the Danish economy is well prepared for a slowdown. Slightly lower growth during a boom period is not an indication that fiscal policy should be eased.

Monetary and financial trends - Decline in interest rates and refinancing boom

In September, Danmarks Nationalbank lowered the interest rate on certificates of deposit by 10 basis points to -0.75 per cent. The interest rate reduction is a consequence of the reduction by the European Central Bank of its key monetary policy rate by 10 basis points. The krone rate remains stable, being slightly on the weak side of the central rate. Overall, financial conditions are accommodative and support the ongoing economic upswing. Declining interest rates have triggered a new refinancing boom during which many households have opted for lower-rate home loans. Credit growth remains moderate and has slowed slightly in 2019.

Trade conflict does not eliminate US current account deficit

The US has a current account deficit and president Donald Trump has an explicit goal of reducing it. However, new trade agreements and new tariffs do not remove the deficit, as the current account is basically determined by the balance between total savings and investments in the US. The growing public budget deficit, on the other hand, tends to increase the US deficit, but a large international demand for dollars helps keeping costs down.

The Danish economy is headed for slightly slower growth in the coming years

​The Danish economy has shown solid growth for a number of years, and that continued in the 1st half of 2019. This is Danmarks Nationalbank's conclusion in a new outlook for the Danish economy, forecasting an increase in the gross domestic product, GDP, of 1.8 per cent this year. Over the next two years, GDP is expected to rise by 1.5 per cent per year.

Mortgage refinancing supports private consumption

Falling mortgage rates have made mortgage refinancing attractive in order to reduce overall home financing costs. Many homeowners raise additional mortgage debt when refinancing. The additional funds are used for increased consumption and home improvements. However, some homeowners spend the funds on reducing other debt or building up a liquidity buffer.

Interest rate reduction

​Effective from 13 September 2019, Danmarks Nationalbank's interest rate on certificates of deposit is reduced by 0.10 percentage point. The lending rate, the current account rate and the discount rate are unchanged.

Speech by governor Lars Rohde at the annual meeting of Danish Auditors 2019

Speech by governor Lars Rohde at the annual meeting of Danish Auditors 10 September 2019

Macroeconomic and financial policy tools for climate change mitigation

Climate change is one of the greatest challenges of our time, requiring a large-scale economic transition in many areas, shows a review of the rapidly growing number of scientific articles and books on this subject, presented in a working paper.

Working Paper: Macroeconomic and financial policies for climate change mitigation: A review of the literature

Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition.

Foreign Exchange and Liquidity and Monthly Balance Sheet, August 2019

​In August 2019, the foreign-exchange reserve decreased by kr. 1.5 billion to kr. 446.6 billion.

International payment cards gain ground

International payment cards have become significantly more prevalent over the past 10 years. This especially applies to international debit cards such as Visa Debit and Mastercard Debit. In the 1st half of 2009, international debit cards accounted for 4 per cent of the total number of card payments in Denmark against 27 per cent in the 1st half of 2019. Dankort and especially VisaDankort remain the Danes´ most used payment cards.

Who buys the 1 per cent mortgage bond?

30-year fixed-rate mortgage bonds with coupon rate of 1 per cent has since the introduction increased to kr. 116 billion. Of this, kr. 81 billion is issued in July alone, which is the largest monthly issue to date for 30-year mortgage bonds. Homeowners have converted mortgages to lower coupon rates to a record extent, in connection with the falling market rates.

Declining interest rate gains by locking in savings

Danish individuals' interest on deposits that are tied up for shorter or longer periods averaged 0.22 percent in July. The interest rate on this type of deposit has fallen by 1.1 percentage points since the beginning of 2015. By comparison, the Danish monetarypolicy interest rates have remained unchanged since the beginning of 2016.

Mortgage debt is rising in 88 municipalities

Danish households' mortgage debt has increased over the past year in 88 of 98 municipalities. The largest yearly increase again occurred in Copenhagen, where mortgage debt increased by 6.5 per cent.

Heightened risk of a global recession

Recession probabilities in the USA and the euro area have risen to high levels in recent years. A global downturn will affect a small open economy like Denmark. The risk of recession in Denmark has risen in line with the risk abroad, but the Danish economy is poised well-positioned to withstand a potential global economic downturn.

Strong business investment appetite

Over the past decade, business investment appetite has been in line with that experienced during previous crises and upswings. Investment has increased as spare production capacity has been absorbed. During the crisis and post-crisis years, investment was mainly constrained by high economic uncertainty and low foreign demand for Danish products. Since the mid-1990s, the growing weight of the service sectors in the Danish economy has structurally reduced investment.

Foreign Exchange and Liquidity and Monthly Balance Sheet, July 2019

​In July 2019, the foreign-exchange reserve decreased by kr. 1.5 billion to kr. 448.1 billion.

Increasing assets in passive investment funds

In the first half of 2019, total assets in passively managed equity funds have grown. This is due to an increase of kr. 7.4 billion in the value of their investments. The increase in assets has occurred even though investors have sold investment fund certificates for kr. 1.9 billion. The selloff in certificates happens after a considerable purchase of kr. 21 billion in 2018.

Foreign investors buy Danish shares in the first half of 2019

Foreign investors have bought listed Danish shares for kr. 4.3 billion in the first half of 2019. Foreign investors own a total of kr. 1,345 billion Danish shares corresponding to an ownership of 52 per cent of the Danish stock market. Foreign investors have owned more than half of Danish shares since the beginning of 2014.

Positive return on Danish shares in the first half

Danish listed shares gave investors a positive return, including dividends totalling 15.0 per cent in the first half of 2019. Overall, share prices have increased by 13.1 per cent, while dividend payments thus contribute by 2.0 per cent to the total return.

Increased instalments, but reduced repayment rate

Instalments on Danes' mortgage loan were kr. 18.8 billion in the first half of the year. This is kr. 118 million more than the previous six months, and 2019 will thus be another record year. The figure corresponds to an annual repayment rate of 2.31 per cent. Compared to the previous six month, the repayment rate has declined by 0.02 percentage points, despite the fact that the instalments amount has increased.

The majority of Danes' deposits receive zero interest

In April, Danish private customers increased their deposits in large and medium-sized banks to kr. 921 billion. Of this, 55 per cent had an interest rate of 0 per cent. The remaining 45 per cent of the deposit had a positive deposit rate, on average 0.65 per cent. Overall, private customers' average deposit rate was 0.3 per cent in April.

Danish investors bought US shares in 2019

Danish investors have bought a large number of North American shares for a total of kr. 16 billion since January 2019. Contrariwise, Danish investors have sold European shares, mainly caused by A.P. Møller-Maersk's sale of their stocks in French Total.

Danes invest abroad via investment funds

Private Danes had invested kr. 463 billion of their free funds in securities by end-May 2019. Of these, kr. 207 billion is invested in investment funds. An investor buying a share in an investment fund owns a part of the fund's securities holdings. Going over securities owned through investment funds gives a more precise picture of their investments, cf. chart below.

Banks are increasing competition for the robust corporate customers

In Nationalbanken's lending survey for the second quarter of 2019, 4 of the 17 surveyed banks report that competitors' behaviour contributes to easing credit standards towards corporate customers. The 4 banks are both medium and large and together constitute 21 per cent of total lending to corporate customer.

Foreign Exchange and Liquidity and Monthly Balance Sheet, June 2019

​In June 2019, the foreign-exchange reserve decreased by kr. 2.1 billion to kr. 449.6 billion.

Central government borrowing strategy in the 2nd half of 2019

The target for issuance of domestic government bonds in 2019 is increased to kr. 75 billion due to an increase in the central government's purchases of government-guaranteed mortgage bonds. The expected average sales of government bonds per auction are around kr. 3 billion at market value. The on-the-run issues will remain unchanged and focus will be on issuance in the 2-year and 10-year nominal bonds.

Fixed rate loans has the lead in 24 municipalities

Over the last year, there has been a doubling of the number of municipalities, where the homeowners' mortgage loans with a fixed interest rate excess variable-rate loans. The number has thus increased from 12 to 24 municipalities.

Denmark's international investment position reaches new high

Denmark's international investment position, IIP, increased in the first quarter of 2019 by kr. 66 billion and thereby reached a new height of kr. 1,469 billion. This corresponds to 65 per cent of GDP.

Stock market comeback re-elevates Danes' financial wealth

The financial wealth of Danish households reaches a new record. Rising equity markets and a large savings surplus contributed to the Danes' wealth increasing by a total of kr. 306 billion in the first quarter of 2019. The increase, which is the largest since 2015, thus more than offset the decline last year, which raises household wealth to new heights.

The natural real interest rate in Denmark has declined

The natural real interest rate has declined since the 1990s. An important explanation is demographic trends in Denmark and abroad, which can be expected to continue in the coming years. Among other factors, lower natural interest rates have prompted central banks in several countries to apply unconventional monetary policies in order to stimulate the economy and increase inflation. Spillover effects from similar measures could affect the Danish economy in the future.

Danmarks Nationalbank's comments on the Danish Economic Council's discussion paper, Spring 2019

Working Paper: Real Effects of Relaxing Financial Constraints for Homeowners: Evidence from Danish Firms

We study how the introduction of interest-only mortgages in 2003 affected job creation and the skill composition of the workforce over the business cycle. The reform significantly increased household expenditure and firms reacted to this demand shock by creating jobs. These positions, however, are classified as low-skilled occupations, filled by younger and less educated workers who face earlier separations and a higher degree of unemployment ex-post.

A small number of participants dominate the interbank market

The analysis looks at the complex network created when the financial institutions exchange many thousands of transactions across the Danish interbank market. The analysis shows that there is a core consisting of a few institutions which are important in terms of spreading liquidity, and that a small number of institutions alone connect isolated institutions with the rest of the network. The interconnectedness of the network emphasise the importance of having robust central participants.

Adjustment of the model for allocating current-account limits to banks and mortgage-credit institutions

Foreign Exchange and Liquidity and Monthly Balance Sheet, May 2019

​In May 2019, the foreign-exchange reserve decreased by kr. 1.2 billion to kr. 451.7 billion.

Oversight of the financial infrastructure 2018

The report presents the conclusions from Danmarks Nationalbank's oversight of the Danish payments infrastructure in 2018. Two major system changes were introduced with the implementation of Kronos2 and the migration of kroner to the trans-European securities platform, T2S. The core payment and settlement systems and most important payment solutions extensively comply with international standards for efficiency and security. Cyber risk management was still a focus area of Danmarks Nationalbank's oversight. The maturity of the systems' cyber security efforts varies.

Declining fraud with Danish payment cards

In the first quarter of 2019, fraud with Danish pay-ment cards for 46 øre for every 1,000 kr. paid. Based on the number of transactions, this corresponds to one fraud per 5,000 transactions.

Purchase of foreign bank bonds

In total, Danish investors have purchased foreign bonds for kr. 70 billion since 2018. It is especially bank bonds with a high credit rating, AAA rating, which in particular Danish pension funds, investment funds, have bought. Conversely, they have sold for-eign government bonds, primarily German.

Fall in dividends to banks' shareholders

In the first four months of 2019, Danish listed banks paid kr. 9.2 billion to their shareholders in dividends. This corresponds to a decrease of kr. 2.3 billion compared to the same period last year. The dividends relate to the financial year 2018 and are typically paid to the shareholders in connection with the general assemblies in March and April.

Danes choose loans with low administration fees

The average administration fee on the Danes' mortgage loans is decreasing because the Danes choose more secure loan types for their financing – especially fixed-rate loans and loans with instalments. The administration fee is now, on average, 0.87 per cent, which corresponds to a monthly payment before tax of kr. 723 per kr. million borrowed.

Danes now have over kr. 900 billion in the banks

In April, total bank deposits by Danish private customers reached kr. 921 billion, corresponding to an increase of kr. 46 billion over the past year. In March and April alone, deposits increased by kr. 26 billion due to pay-outs of dividends, excess tax and holiday pay.

Prospects of lower earnings and higher capital requirements for banks

The systemic credit institutions' results remain high, underpinned by low loan impairment charges since 2010. A substantial dampening of economic growth would lead to higher loan impairment charges and consequently lower earnings in future. The requirements for banks' capital structure are likely to be tightened considerably in the coming years. This may put pressure on the systemic credit institutions' excess capital adequacy if they fail to build up further capital adequacy beforehand.

Banks face new requirements in the stress test

Danmarks Nationalbanks conducts a semi-annual stress test of the Danish banking sector. The stress test shows that the systemic banks satisfy their risk-based capital requirements and the leverage ratio requirement in a severe recession scenario. The analysis also looks at the banks' ability to satisfy MREL under stress and shows that the systemic banks depend on being able to continue to issue MREL-eligible instruments in order to satisfy the requirement.

Lower growth may cause bank earnings to fall

Economic growth continues in Denmark and many other parts of the world, but the pace is set to slowdown in the coming years. A substantial dampening of economic growth would lead to higher loan impairment charges and consequently lower earnings in the banks in the future, Danmarks Nationalbank points out in its semi-annual analysis of financial stability in Denmark.

Working Paper: The effects of macroprudential policies on house price cycles in an agent-based model of the Danish housing market

In this paper an agent-based model is used to investigate how tightening loan-to-value and loan-to-income ratios affects house price cycles. The use of an agent-based model allows for the analysis of the effects of these policies on heterogeneous households. I find that these policies reduce house price cycles in a non-linear way that depends crucially on the distribution of households and highlights the importance of macroprudential policymakers taking into account the distributions of households.

Working Paper: Multiple credit constraints and time-varying macroeconomic dynamics

I build a DSGE model where households face a loan-to-value (LTV) constraint and a debt-service-to-income (DTI) constraint. From an estimation of the model, I infer when each constraint was binding over the 1975-2017 timespan in the U.S. I also infer that DTI standards were relaxed during the mid-2000s credit boom. In the light of this, the boom could have been avoided by tighter DTI limits, but not by tighter LTV limits. The role of multiple credit constraints for the emergence of nonlinear dynamics is corroborated by county panel data.

Consultation response regarding potential candidates for a new risk-free reference rate for the Danish krone market

Danmarks Nationalbank considers it positive that a new reference rate will be based on actual transactions rather than quoted prices, as the underlying transactions will enhance confidence in the reference rate. With the aim of clarification and of strengthening confidence in reference rates in Denmark, the new reference rate should be implemented rapidly, and the existing one should be phased out. It is essential that the sector now continues this work. Solutions still need to be found for reference rates for longer maturities and for migrating existing contracts from old to new reference rates. Such solutions should match international best practice.

Danish companies increase foreign direct investments abroad

Danish investors increased their outward direct in-vestments abroad by kr. 6.3 billion in the first quar-ter of 2019.

Liquidity stress test shows that Kronos is resilient

Kronos is Danmarks Nationalbank's payment system for large-value time-critical payments and it is the heart of the Danish financial infrastructure. The analysis assesses the robustness of the system, measured as the change in participants' liquidity needs as well as their ability to settle payments in a timely manner when the system is exposed to stress in three different scenarios: (1) One large participant cannot submit payments for a full business day, (2) the money market is inaccessible, and (3) the participants' access to intraday credit is reduced. The analysis shows that the system is resilient in all three scenarios.

Danes pursuit medium risk investments

Danish private investors primarily choose medium-risk when investing through investment funds. Since the beginning of 2018, Danes' net investments in these funds total kr. 15.2 billion. Conversely, they sold either low- or high-risk investment fund shares for a total of kr. 7.3 billion over the same period.

Foreign Exchange and Liquidity and Monthly Balance Sheet, April 2019

​In April 2019, the foreign-exchange reserve decreased by kr. 1.2 billion to kr. 452.9 billion.

Increasing equity prices support investments

This analysis shows how fluctuations in equity prices affect business in-vestments in fixed capital via a "Tobin's Q channel". The main conclusion is that an increase of 10 per cent in the prices of Danish listed firms leads to an increase of 1.8 per cent in those firms' investments.

The Pension sector buys foreign shares

The insurance and pension sector, I&P, bought foreign portfolio shares and investment fund shares for kr. 2.9 billion in March. With almost 60 per cent, I&P own the majority of the Danes' total investments in foreign shares, etc., which amount to kr. 1,884 billion in total.

Large decline in mortgage bond duration

A fall in the long-term interest rates in March contributed to a decline in the average duration of fixed-rate callable mortgage bonds of 1.8 years to 3.1 years. Since the end of last year the duration has fallen by 2.8 years. Callable bonds total kr. 1,043 billion.

Mortgage rates reach new record-low level

The Danes' average mortgage rate including administration fees is below 2 per cent – precisely at 1.97 per cent. The interest rate including fees of 1.69 per cent on new mortgages issued in March is also a new record-low.

Opening of 0.25 per cent bullet loan 2022

Danmarks Nationalbank joins the Network for Greening the Financial System

​Danmarks Nationalbank has become a member of the Network for Greening the Financial System, NGFS, a group of central banks and supervisory authorities.

Lending survey 20180408

In Danmarks Nationalbank's lending survey, the banks reply that in the first quarter of 2019 credit standards for businesses have been unchanged (net figure is -0.5). Over the past 5 years the credit standards for businesses have eased overall.

Foreign Exchange and Liquidity and Monthly Balance Sheet, March 2019

​In March 2019, the foreign-exchange reserve decreased by kr. 1.5 billion to kr. 454.1 billion.

Denmark's international investment position peaked in 2018

Denmark's international investment position, IIP, increased by kr. 195 billion in 2018 and reached a new peak of kr. 1,403 billion corresponding to 63 per cent of GDP. It is no more than 10 years since Denmark had foreign debt. The foreign debt peaked 30 years ago in 1988, where it amounted to 38 per cent of GDP.

Danes' financial net wealth fell in 2018 for the first time in 10 years

Falling stock markets in the fourth quarter contributed to a kr. 179 billion decline in the financial net wealth of Danish households in 2018 - even though Danes are still net saving additional funds. The decline corresponds to each household's net wealth falling by kr. 75,000 last year. This represents the first decline in household's financial net wealth since the financial crisis in 2008.

Foreign investors buy Danish bank bonds

Danish banks have issued bonds worth kr. 406 billion at the end of February 2019. The major part is issued in foreign currency and is targeted foreign investors. Foreign investors own around 80 per cent of the Danish bank bonds.

Private investors concentrate their foreign share purchases

Danish private investors own hand-picked foreign shares for kr. 50 billion. Since the beginning of 2018, Danish private investors have purchased foreign shares for kr. 8.2 billion and sold for kr. 6.7 billion which gives a total purchase of foreign shares for kr. 1.5 billion. The transactions are concentrated on few shares. The ten most-bought shares account for almost one quarter of the total share purchase.

Low Danish deposit and lending rates for corporations

In Denmark, interest rates on corporate loans and deposits are low compared to the rates in the euro area.

Mortgages with instalments take up more

At the end of February, the Danes had mortgage loans with instalments totalling kr. 796 billion. This is kr. 227 billion more than in September 2014, when the proportion of Danes' mortgage loans with instalments reached its lowest point of 44 per cent of total mortgage lending.

The Danish economy is well prepared for external risks

The upswing in the Danish economy continues for the sixth consecutive year, and so far it has been balanced. The boom is also set to continue in the coming years, but at a slightly slower pace. This is only natural after several very good years.

Outlook for the danish economy - The Danish economy is heading deeper into the boom

The Danish economy is in a balanced upswing for the sixth year in a row. Economic growth is deemed to continue at a more steady pace. The economy is well prepared for addressing the current risks, including some dampening of growth abroad. It is important for the structural reforms implemented and the objective of structural balance of public finances in 2021 to be maintained. The expected dampening of growth does not call for expansionary fiscal measures.

The impact of the housing taxation agreement on house prices

The housing taxation agreement from 2017 contributes to higher prices for single-family houses and lower prices for owner-occupied flats towards 2022.

Monetary and financial trends - Low interest rates supports the upswing

The krone exchange rate is very close to the central rate. Danmarks Nationalbank bought kroner in December 2018 and January 2019 after a gradual weakening of the krone during 2018. Monetary policy and the broader financial conditions are accommodative and support the current economic expansion. Borrowing rates for the real economy have been falling for a number of years, but credit growth remains moderate, and overall corporations and households have strengthened their financial balances through the economic expansion.

Economic policy is to contribute to balanced growth

​The Danish economy is booming. Some sectors are experiencing labour shortages, but wages are still increasing only moderately. Economic growth is expected to continue at a slightly slower pace in the coming years. Strong economic balances give reasons to believe that the boom will not be followed by a deep recession as seen in the 2000s. That is Danmarks Nationalbank's conclusion in a new projection of the Danish economy, which forecasts growth in the gross domestic product, GDP, of 1.7 per cent this year and next year, while it is expected to be 1.6 per cent in 2021.

Annual report 2018

Danmarks Nationalbank's accounts for 2018 show a loss of kr. 24 million, compared with a loss of kr. 254 million in 2017. Danmarks Nationalbank’s revenue is subject to structural pressure from negative interest rates. The loss not being greater is i.a. due to the temporary exchange rate gain of kr. 1.4 billion as a consequence of the strengthening of the euro against.

Theme: Cost of payments in Denmark

The Danish Payments Council has surveyed the social costs of payments in Denmark for the most common methods of payment in Denmark, used by citizens and businesses. The results of the survey are presented in a series of analyses from the Danish Payments Council: Costs of Payments in Denmark. Analyses and further information are gathered on this web page.

Foreign Exchange and Liquidity and Monthly Balance Sheet, February 2019

​In February 2019, the foreign-exchange reserve increased by kr. 14 million to kr. 455.6 billion.

Each Dane pays with a card 1.2 times per day

In 2018, Danes used their payment cards 2.1 billion times in total, either in Denmark or abroad, for an aggregate amount of a staggering kr. 614 billion. This is equivalent to a daily use of 1.2 times by every adult Dane for an average amount of kr. 292 each time.

Closed for new 30-year 2 per cent mortgages

In the beginning of January, fall in interest rate led to a price of 30-year 2 per cent mortgage bonds with repayments over 100. Consequently, the mortgage credit institutions closed for admission of new 30-year loans with 2 per cent interest rate and repayments. In January 2019, the outstanding amount of the underlying bonds was thus unchanged at kr. 312 billion.

Foreign investors continue to buy fixed-rate mortgage bonds

Foreign investors continue to buy fixed-rate mort-gage bonds and owned for kr. 345 billion at the end of January, corresponding to an ownership of 32 per cent. This is triple the level of 2012, when foreign purchases of fixed-rate mortgage bonds took off.

Working Paper: A new model for money demand in Denmark: Money demand in a negative interest rate environment

Within a cointegrated VAR framework I show that the traditional money-demand relation can no longer explain the recent development of monetary aggregates in Denmark. Instead, I argue that the introduction of housing wealth and the role of precautionary demand for liquidity improves both the explanatory power of money demand and the stability of the long-run estimates. Finally, I show that the negative interest rate environment has not affected the underlying determination of money demand.

Lower mortgage interests absorb larger repayments

In 2018, Danish households paid an average interest rate of 1.20 per cent on their mortgage debt along with 0.96 per cent in administration fees. Thus households' total interest expenses incl. fees amounted to 2.16 per cent, which is the lowest level ever. Including instalments, households' had annual yield payments of 4.52 per cent in 2018.

Loss on banks' agricultural loans unchanged

2018 offered a warm and dry summer while prices on agricultural products decreased. As a result the conditions for the agricultural sector have been difficult. Still losses on banks' agricultural loans have been limited compared to previous years. In 2018 banks lost kr. 1.5 billion, which is 3 per cent below the loss in 2017 and markedly lower than 2016.

Mobile person-to person payments involve the lowest social costs

For person-to person, P2P, payments, mobile payment is the method that involve the lowest social costs. One of the reasons is that mobile payments have become very popular for settling P2P accounts. That is the conclusion in new analyses based on the Danish Payments Council's survey of costs of payments in Denmark.

The mobile phone has contributed to reducing the costs of person-to-person payments

For person-to-person, P2P, payments, mobile payment is the method that entails the lowest social costs. One of the reasons is that payment by mobile phone has become very popular for settling P2P accounts.

The riskiness of corporate credit allocation is increasing

The analysis assesses the build-up of riskiness of corporate credit allocation using an indicator based on firms' financial statements. The indicator shows an increase in the riskiness of credit allocation in the most recent upswings. Overall, riskiness was lower in 2017 than in the pre-crisis period, however. Similar development is seen across industries. Unlike in the pre-crisis period, no particular industry stands out.

Homeowners increase their borrowing and spending when house prices rise

Many Danish homeowners convert rising house prices into spending by increasing their mortgage debt. They do this by refinancing existing mortgages or raising additional loans, thereby translating home equity into liquid funds. Rising prices of owner-occupied homes thus provide scope for increased consumer spending or e.g. repayment of other debt.

Working Paper: Housing as collateral and home-equity extraction

We study the effect of house price developments on home-equity extraction and household expenditure, exploiting data covering the population of Danish homeowners between 2009 and 2016. Our findings indicate that house price increases affect home-equity extraction – and more so for homeowners close to their borrowing limits. Furthermore, the effect of house prices on expenditure is entirely driven by home-equity extraction. Our results indicate that the mortgage system plays an important role for the transmission of housing wealth increases to the real economy.

Direct investments declined in 2018

After several years of progress, outward direct investments from Denmark fell by kr. 60 billion in 2018. The inward direct investments to Denmark fell by kr. 11 billion.

Foreign Exchange and Liquidity and Monthly Balance Sheet, January 2019

​In January 2019, the foreign-exchange reserve decreased by kr. 3.5 billion to kr. 455.5 billion. The decrease reflects Danmarks Nationalbank's net sale of foreign exchange for kr. 3.3 billion, and the central government's net repayment of foreign debt for kr. 0.1 billion, cf. table 1.

Nordic-Baltic financial crisis simulation

​The Nordic and Baltic financial stability authorities have conducted a joint financial crisis management exercise. The exercise was held from 22 to 23 January 2019 and involved 31 authorities from Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden as well as relevant European Union authorities. A staff member of the International Monetary Fund observed the simulation.

Bad year for investors in investment funds

2018 has been a bad year for investors in Danish investment funds. The investment funds yielded a negative return of 5.7 per cent for their investors. The losses affected most investors and most of the types of investment funds, they have invested in.

Danish government borrowing and debt 2018

Denmark's government debt policy has been characterised by four years of very low funding costs and declining debt. In 2018, the central government debt fell to 19 per cent of GDP. The central government saves considerable interest costs by granting on-lending and buying bonds to finance social housing. At the same time, it contributes to supporting the market for government securities. Market liquidity is also supported by the central government's activity in the secondary market and by a well-functioning primary dealer model.

Appointment of Head of Economics and Monetary Policy

​Danmarks Nationalbank has appointed Signe Krogstrup as the new Assistant Governor and Head of Economics and Monetary Policy with effect from 1 June 2019.

Working Paper: Macro-financial linkages in a SVAR model with application to Denmark

We analyse macro-financial linkages in the Danish economy by estimating a structural VAR model. We construct a new financial condition index for the Danish economy. We find that financial conditions stimulated GDP before the financial crisis and deepened the subsequent recession. In recent years, financial conditions have contributed to the expansion in Denmark.

Large purchase of foreign portfolio assets in 2018

In 2018 Danish investors purchased foreign portfolio shares and bonds totalling kr. 115 billion; the largest purchase since 2014. The foreign portfolio assets amount to kr. 3,020 billion corresponding to 138 per cent of the gross domestic product, GDP.

Lower credit growth in growth areas

In 14 of the Danish municipalities with the highest price increases for owner-occupied homes (growth areas), mortgage lending to households was lower in 2018 compared with the previous year.

Large municipal differences in instalments

Household mortgage loan instalments averaged kr. 23,500 per borrowed million in 2018. The average figure covers large municipal differences in instalments. The differences have grown in recent years.

Working Paper: Housing wealth effects and mortgage borrowing

We investigate the co-movement of house prices, home equity extraction and consumption in Denmark. Using survey data we develop a measure for unanticipated house price changes which can be merged on Danish administrative data. Thus, we can show how home owners who experience an unexpected positive house price shock extract home equity and increase spending. We find that the effect is driven by home owners who could potentially benefit from refinancing existing mortgages. This indicates that the wealth effect is intimately connected to the functioning of the mortgage market.