G5 - Household Finance
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Mortgage stress tests and household financial resilience under monetary policy tightening
This note analyzes mortgage stress tests, a macroprudential tool. We find that when mortgage stress tests are applied to all mortgage purchase originations, they improve credit quality and reduce credit and house price growth. They also improve the resilience of borrowers to financial shocks, such as the large increase in interest rates during 2022–23. -
Consumer Credit Regulation and Lender Market Power
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. -
Housing Affordability and Parental Income Support
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. -
Central Bank Digital Currency and Transmission of Monetary Policy
How does the transmission of monetary policy change when a central bank digital currency (CBDC) is introduced in the economy? Does CBDC design matter? We study these questions in a general equilibrium model with nominal rigidities, liquidity frictions, and a banking sector where commercial banks face a leverage constraint. -
Credit Card Minimum Payment Restrictions
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. -
Impacts of interest rate hikes on the consumption of households with a mortgage
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. -
The Macroeconomic Implications of Coholding
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. -
Unintended Consequences of the Home Affordable Refinance Program
We investigate the unintended consequences of the Home Affordable Refinance Program (HARP). Originally designed to help borrowers refinance after the 2008–09 global financial crisis, HARP inadvertently strengthened the market power of incumbent lenders by creating a cost advantage for them. Despite a 2013 policy rectifying this cost advantage, we still find significant welfare losses for borrowers. -
Measuring household financial stress in Canada using consumer surveys
We use data from the Canadian Survey of Consumer Expectations to understand how households are coping with high inflation and high interest rates. We build a subjective measure of financial stress and find that the level of stress is at a historical high but remains manageable for most households.