E21 - Consumption; Saving; Wealth

• From Micro to Macro Hysteresis: Long-Run Effects of Monetary Policy

  Staff Working Paper 2024-39 Felipe Alves, Giovanni L. Violante

  We explore the long-run effects of a monetary policy shock in a Heterogeneous Agent New Keynesian model built on the micro evidence that job losses lead to persistently lower individual earnings through a combination of skill decay and abandonment of the labour force.

  Content Type(s): Staff research, Staff working papers Topic(s): Labour markets, Monetary policy transmission JEL Code(s): E, E2, E21, E24, E3, E31, E32, E5, E52, J, J2, J24, J6, J64

• Consumer Credit Regulation and Lender Market Power

  Staff Working Paper 2024-36 Zachary Bethune, Joaquín Saldain, Eric R. Young

  We investigate the welfare consequences of consumer credit regulation in a dynamic, heterogeneous-agent model with endogenous lender market power. Lenders post credit offers and borrowers—some informed and others uninformed—apply for credit. We calibrate the model to match characteristics of the unsecured consumer credit market and use the calibrated model to evaluate interest rate ceilings.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial markets, Interest rates JEL Code(s): D, D1, D15, D4, D43, D6, D60, D8, D83, E, E2, E21, G, G5, G51

• Household Food Inflation in Canada

  Staff Working Paper 2024-33 Olena Kostyshyna, Maude Ouellet

  We study food inflation rates for Canadian households during periods of low and high inflation from 2012Q4 to 2023Q4. Households experienced more varied inflation rates during the recent high inflation. Cumulative food inflation has been 2.2 percentage points higher for lower-income households than for highest-income households since the inflation surge.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices JEL Code(s): E, E2, E21, E3, E30, E31, L, L8, L81

• Price Discounts and Cheapflation During the Post-Pandemic Inflation Surge

  Staff Working Paper 2024-31 Alberto Cavallo, Oleksiy Kryvtsov

  We study how price variation within a store changes with inflation, and whether households exploit these changes to reduce the burden of inflation. We find that price changes from discounts mitigated the inflation burden while cheapflation exacerbated it.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation: costs and benefits, Market structure and pricing JEL Code(s): E, E2, E21, E3, E30, E31, L, L8, L81

• Housing Affordability and Parental Income Support

  Staff Working Paper 2024-28 Jason Allen, Kyra Carmichael, Robert Clark, Shaoteng Li, Nicolas Vincent

  In many countries, the cost of housing has greatly outpaced income growth, leading to a housing affordability crisis. Leveraging Canadian loan-level data and quasi-experimental variation in payment-to-income constraints, we document an increasing reliance of first-time homebuyers on financial help from their parents, through mortgage co-signing. We show that parental support can effectively relax borrowing constraints—potentially to riskier borrowers.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial services, Financial system regulation and policies, Housing JEL Code(s): D, D6, D64, E, E2, E21, E24, G, G1, G18, G5, G51

• Credit Card Minimum Payment Restrictions

  Staff Working Paper 2024-26 Jason Allen, Michael Boutros, Benedict Guttman-Kenney

  We study a government policy that restricts repayment choices with the aim of reducing credit card debt and estimate its effects by applying a difference-in-differences methodology to comprehensive credit-reporting data about Canadian consumers. We find the policy has trade-offs: reducing revolving debt comes at a cost of reducing credit access, and potentially increasing delinquency.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial system regulation and policies JEL Code(s): D, D1, D18, E, E2, E21, G, G2, G28, G5, G51

• Impacts of interest rate hikes on the consumption of households with a mortgage

  Staff Analytical Note 2024-14 Panagiotis Bouras, Joaquín Saldain, Xing Guo, Thomas Michael Pugh, Maria teNyenhuis

  We assess how much the recent rate-hike cycle has and will affect mortgage borrowers' consumption through its impacts on mortgage payments. Our analysis provides insights into the effects of changes in monetary policy on the consumption of mortgage borrowers.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Interest rates, Monetary policy, Recent economic and financial developments JEL Code(s): D, D1, D13, E, E2, E21, G, G5

• Saving after Retirement and Preferences for Residual Wealth

  Staff Working Paper 2024-21 Giulio Fella, Martin B. Holm, Thomas Michael Pugh

  We estimate a model of households in Norway with bequest motives, health-dependent utility, and uncertain longevity and health. Our estimates imply strong bequest motives for households both with and without offspring. We interpret this as suggestive evidence that utility from residual wealth represents forces beyond an altruistic bequest motive.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Fiscal policy, Housing, Labour markets JEL Code(s): D, D1, D11, D12, D14, E, E2, E21

• The Macroeconomic Implications of Coholding

  Staff Working Paper 2024-16 Michael Boutros, Andrej Mijakovic

  Coholder households simultaneously carry high-cost credit card debt and low-yield cash. We study the implications of this behavior for fiscal and monetary policy, finding that coholder households have smaller consumption responses in the short run but larger responses in the long run.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Fiscal policy, Monetary policy JEL Code(s): E, E2, E21, E4, E44, E6, E62, G, G5, G51

• How changes in the share of constrained households affect the effectiveness of monetary policy

  Staff Analytical Note 2024-3 Felipe Alves, Sushant Acharya

  We measure how the change in the share of constrained households in Canada following the COVID-19 recession has impacted the effectiveness of monetary policy.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Monetary policy transmission JEL Code(s): E, E2, E21, E4, E40, E5, E50