have increased, driving up housing demand while new housing construction has lagged behind, apart from in the most recent years. the abolition of property tax is also a 4 see the article " the repo rate in the long run ” in the february 2017 monetary policy report, sveriges riksbank. 5 factor that might explain the growing indebtedness, as is the fact that an increasing number of households own their own home. 5 the rate of increase in lending to households is still on a high level. the riksbank ’ s assessment of future developments is that overall household debt will not rise at quite such a high rate as in recent years, due to more subdued housing price growth. but debt is still expected to increase more rapidly than disposable income. so the debt - to - income ratio will continue to rise. high indebtedness is making household finances more sensitive to interest rate adjustments when monetary policy gradually starts to normalise and interest rates rise, it will happen against this backdrop of high indebtedness among households and high housing market valuation. in addition, many have taken out variable - rate mortgages with short interest - rate fixation periods. taken together, this means that household finances are now more sensitive to adjustments in interest rates than before. disposable income, that is income minus borrowing costs, is affected to a greater extent by interest rate adjustments when debt is high, all other factors being equal. calculations show that an interest - rate rise of about 1 percentage point now has a significantly greater direct effect on household disposable income than in the mid1990s. in this sense, households ’ interest - rate sensitivity is now greater. 6 the interesting question is whether households adapt their consumption to a corresponding degree so that consumption also changes to a greater extent. it need not necessarily be so. for example, interest income can offset the effect of higher interest expenditure. if households also plan in advance for a scenario where interest expenditure takes a greater share of their income, consumption may not necessarily be affected to any great extent. but research findings point to this potentially playing a major role at least for certain groups of households. 7 more specifically, it is shown that highly indebted households with variable - rate mortgages adapt their consumption to a greater extent than other households when interest rates change. this may be due to an interest rate adjustment affecting their disposable income to a greater extent, as i just described. but it may

impression of the effects on prices of a 15 - per cent depreciation in the krona. let us assume a pass - through to import prices equivalent to half of the change in the exchange rate. this means that they will rise by 7. 5 per cent. 9 if one assumes that these prices constitute 30 per cent of the consumer price index ( cpi ), this means that consumer prices will rise by just over 2 per cent as a consequence of the change in the exchange rate. according to this rough estimate, the pass - through from the nominal exchange rate on the cpi is thus around 15 per cent. 10 as the exchange rate fluctuates substantially, it may nevertheless entail fairly large effects on inflation, although the calculations in the example can be taken with a pinch of salt. 11 we assume here that prices of imported goods in the consumer sector rise by 7. 5 per cent. a 50 - per cent impact on import prices, which comprise around 30 per cent of the cpi, gives a 15 - per cent exchange rate pass - through to the cpi. see also the article “ the path of the krona and inflation ” in ir06 : 1 the effects of the exchange rate on the real economy one can usually expect a weakening of the exchange rate to lead to a positive effect on net exports. however, experiences show that it may take time before exchange rate changes have an impact on foreign trade. in the short term, the value of imports adapts in that import prices in kronor rise as a result of the weaker exchange rates. the initial effect of a weaker exchange rate on net exports can thus be negative. however, in the slightly longer term producers and consumers adapt and export and import volumes are affected. when the exchange rate weakens, exports increase while imports decline, as domestically - produced goods and services become relatively cheaper. the effect of a weakening in the exchange rate can thus be that net exports follow what is known as a j curve ; first they weaken and then they improve. 12 in the long term one can thus expect a weaker exchange rate to lead to increased net exports, which in turn has a positive effect on total production ( gdp ). overall view is important although it may be informative to reflect on the isolated effects of exchange rate changes on the economy, it is difficult to know what causes what. at the same times as the krona weakened in connection with the financial crisis, production fell substantially, partly as a result of a large