D - Microeconomics

• A Framework to Assess Vulnerabilities Arising from Household Indebtedness Using Microdata

  Staff Discussion Paper 2012-3 Ramdane Djoudad

  Rising levels of household indebtedness have created concerns about the vulnerabilities of households to adverse economic shocks and the impact on financial stability. To assess these risks, the author presents a formal stress-testing framework that uses microdata to simulate how various economic shocks affect the distribution of the debt-service ratio (DSR) for the household sector.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Econometric and statistical methods, Financial stability JEL Code(s): C, C1, C15, C3, C31, D, D1, D14, E, E5, E51
• February 23, 2012

  What Explains Trends in Household Debt in Canada?

  Bank of Canada Review - Winter 2011-2012 Allan Crawford, Umar Faruqui

  Similar to the experiences in many other countries, household indebtedness in Canada has exhibited an upward trend over the past 30 years. Both mortgage and non-mortgage (consumer) credit have contributed to this development. In this article, the authors use microdata to highlight the main factors underlying the strong trend increase since the late 1990s. Favourable housing affordability, owing to factors such as income growth and low interest rates, has supported significant increases in home-ownership rates and mortgage debt. Much of the rise in consumer credit has been facilitated by higher housing values (used as collateral for loans) and financial innovation that makes it easier for households to access this credit.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Credit and credit aggregates JEL Code(s): D, D1, D12, D14, E, E5, E51
• February 23, 2012

  Household Insolvency in Canada

  Bank of Canada Review - Winter 2011-2012 Jason Allen, H. Evren Damar

  With increasing levels of household debt in recent years, the number of households that may be vulnerable to a negative economic shock is rising as well. Decisions made by both the debtor and the creditor can contribute to insolvency. This article presents some stylized facts about insolvency in Canada’s household sector and analyzes the role of creditors in insolvencies. The average debt of an individual filing for bankruptcy is more than 1.5 times that of an average Canadian household; bankruptcy filers tend to be unemployed or in low-wage jobs, and are typically renters. The article reports that banks that approve more loans per branch, which is interpreted as less-intensive use of soft information (such as the loan officer’s assessment of the applicant’s character), experience more client bankruptcies. This finding has important policy implications, because financial institutions that do not use soft information risk further deterioration in their lending portfolios.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Financial services JEL Code(s): D, D4, G, G2

• Why Is Cash (Still) So Entrenched? Insights from the Bank of Canada’s 2009 Methods-of-Payment Survey

  Staff Discussion Paper 2012-2 Carlos Arango, Dylan Hogg, Alyssa Lee

  The authors present key insights from the Bank of Canada’s 2009 Methods-of-Payment survey. In the survey, about 6,800 participants completed a questionnaire with detailed information regarding their personal finances, as well as their use and perceptions of different payment methods.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Bank notes, Financial services JEL Code(s): D, D1, D12, E, E4, E41, L, L8, L81