Credit and credit aggregates
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Monetary Policy, Credit Constraints and SME Employment
We revisit an old question: how do financial constraints affect the transmission of monetary policy to the real economy? To answer this question, we propose a simple empirical strategy that combines firm-level employment and balance sheet data, identified monetary policy shocks and survey data on financing activities. -
November 22, 2022
Tracking the financial vulnerabilities of households and the housing market
The Bank of Canada is publishing a new set of indicators of financial vulnerabilities. This will allow households, the private sector, financial authorities and governments to better understand and monitor the evolution of two key vulnerabilities in the financial system: the elevated level of household indebtedness and high house prices. -
Variable-rate mortgages with fixed payments: Examining trigger rates
We estimate the share of variable-rate mortgages with fixed payments that reached the so-called trigger rate—the interest rate at which mortgage payments no longer cover the principal. Amid rising interest rates, this share was close to 50% at the end of October 2022 and could potentially reach 65% in 2023. -
Risk and State-Dependent Financial Frictions
Using a nonlinear New Keynesian model with a financial accelerator, we show that financial frictions generate large state-dependent amplification effects. Shocks propagate more strongly in periods of financial stress. We propose an endogenous regime-switching DSGE framework for efficient estimation and improved model fit. -
Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification
We provide empirical evidence of effects to the aggregate economy from surprises about financial intermediaries’ net worth based on a high-frequency identification strategy. We estimate that news of a 1% decline in intermediaries’ net worth leads to a 0.2%–0.4% decrease in the market value of nonfinancial firms. -
Assessing Climate-Related Financial Risk: Guide to Implementation of Methods
A pilot project on climate transition scenarios by the Bank of Canada and the Office of the Superintendent of Financial Institutions assessed climate-related credit and market risks. This report describes the project’s methodologies and provides guidance on implementing them. -
News-Driven International Credit Cycles
This paper examines the implications of positive news about future asset values that turn out to be incorrect at a later date in an open economy model with banking. The model captures the patterns of bank credit and current account dynamics in Spain between 2000 and 2010. The model finds that the use of unconventional policies leads to a milder bust. -
September 24, 2021
Monitoring payment deferrals during the COVID-19 pandemic—update, July 2021
In the initial stages of the COVID-19 pandemic, Canada’s financial institutions allowed households to defer payments on a range of loans. With nearly all of these deferrals having expired, we provide a final update of how these loans have performed through to July 2021. -
Can the characteristics of new mortgages predict borrowers’ financial stress? Insights from the 2014 oil price decline
We study the relationship between characteristics of new mortgages and borrowers’ financial stress in Canada’s energy-intensive regions following the 2014 collapse in oil prices. We find that borrowers with limited home equity were more likely to have difficulty repaying debt.