Household Risk Assessment Model

Household debt can be an important source of vulnerability to the financial system. This technical report describes the Household Risk Assessment Model (HRAM) that has been developed at the Bank of Canada to stress test household balance sheets at the individual level. In addition to stress testing, HRAM is flexible enough to analyze the effects of a variety of shocks (such as an increase in mortgage rates) and changes to policy, including both monetary policy and macroprudential regulation. The model’s strength is its ability to exploit information from survey microdata on the distribution of debt, assets and income across Canadian households.