Sveriges Riksbank

09/07/2021 | Press release | Distributed by Public on 09/07/2021 02:56

Another perspective on financial stability risks

In this staff memo, the authors examine the extent to which macrofinancial conditions, as reflected in, for example, interest rates, asset prices and leverage, can predict extreme negative economic outcomes in Sweden. Macrofinancial conditions can contribute to the build-up of risks and vulnerabilities in the financial system. These risks and vulnerabilities may in turn affect the functioning of the financial system, and lead to financial instability, which can translate into lower economic growth. In the case of a crisis, were macrofinancial risks materialise, resulting output losses can be quite substantial. Monitoring how macrofinancial conditions signal risks about extreme negative growth outcomes in the future is therefore important.