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Title	Consumption, Housing Collateral, and the Canadian Business Cycle
Author	Ian Christensen, Paul Corrigan, Caterina Mendicino and Shin-Ichi Nishiyama
Type	Working Paper 2009-26
Date of publication	October 2009
Language	English
Abstract	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. Our findings show that the presence of borrowing constraints improves the performance of the model in terms of overall goodness of fit. In particular, the presence of housing collateral generates a positive correlation between consumption and house prices. Finally we find that housing collateral induced spillovers account for a large share of consumption growth during the housing market boom-bust cycle of the late 1980s.
Bank topic index	Business fluctuations and cycles; Credit and credit aggregates; Transmission of monetary policy
JEL classification	E21, E32, E44, E52, R21

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