E21 - Consumption; Saving; Wealth
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February 23, 2012
Household Borrowing and Spending in Canada
Understanding how much of the increased debt load of Canadian households has been used to finance household spending on consumption and home renovation is important for the conduct of monetary policy. In this article, the authors use a comprehensive data set that provides information on the uses of debt by Canadian households. They first present some facts regarding the evolution of Canadian household debt over the period from 1999 to 2010, emphasizing the increased importance of debt flows that are secured by housing. They then explore how Canadian households have used their borrowed funds over the same period, and assess the role of these borrowed funds in financing total consumption and spending on home renovation. Finally, they examine the possible effects of a decline in house prices on consumption when housing equity is used as collateral against household indebtedness. -
The Propagation of U.S. Shocks to Canada: Understanding the Role of Real-Financial Linkages
This paper examines the transmission of U.S. real and financial shocks to Canada and, in particular, the role of financial frictions in affecting the transmission of these shocks. These questions are addressed within the Bank of Canada's Global Economy Model (de Resende et al. forthcoming), a dynamic stochastic general-equilibrium model with an active banking sector and a detailed role for financial frictions. -
A Model of Housing Stock for Canada
Using an error-correction model (ECM) framework, the authors attempt to quantify the degree of disequilibrium in Canadian housing stock over the period 1961–2008 for the national aggregate and over 1981–2008 for the provinces. -
Prospects for Global Current Account Rebalancing
The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. -
Consumption, Housing Collateral, and the Canadian Business Cycle
Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle. -
Credit Constraints and Consumer Spending
This paper examines the relationship between aggregate consumer spending and credit availability in the United States. The author finds that consumer spending falls (rises) in response to a reduction (increase) in credit availability. -
Household Debt, Assets, and Income in Canada: A Microdata Study
The authors use microdata from the 1999 and 2005 Surveys of Financial Security to identify changes in household debt, and discuss their potential implications for monetary policy and financial stability. They document an increase in the debt-income ratio, which rose from 0.75 to 0.95, on average. -
Real Effects of Price Stability with Endogenous Nominal Indexation
We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997). -
Uninsurable Investment Risks and Capital Income Taxation
This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks.