This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt.
Topics: Credit and credit aggregates; Domestic demand and componentsWe investigate whether expectations that are not fully rational have the potential to explain the evolution of house prices and the price-to-rent ratio in the United States.
Topics: Asset Pricing; Domestic demand and components; Economic modelsUnderstanding 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.
Topics: Credit and credit aggregates; Domestic demand and components; Transmission of monetary policyUsing 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.
Topics: Domestic demand and componentsThis 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.
Topics: Credit and credit aggregates; Domestic demand and components; Recent economic and financial developmentsFlood, Morin, and Kolet examine the role of house prices in household consumption decisions. Considering a group of advanced economies, the authors find that the strength of the link between house prices and consumer spending depends on the institutional features of national mortgage markets. The link between house prices and consumer spending is found to be stronger in countries with more-developed mortgage markets characterized by lower down payment ratios, increased availability of home-equity borrowing products, longer average mortgage terms, and a higher degree of mortgage securitization. Their findings also suggest that the liberalization of mortgage markets since the early 1980s has resulted in a stronger link between house prices and consumer spending.
Topics: Domestic demand and components; International topics; Recent economic and financial developmentsUsing industry-level data for 22 Canadian manufacturing industries, the authors examine the relationship between exchange rates and investment during the period 1981–97.
Topics: Domestic demand and components; Exchange ratesThis study on overinvestment differs from the existing literature in that investment in machinery and equipment is modelled as a structural vector autoregression with identification achieved by imposing long-run restrictions, as in Blanchard and Quah (1989).
Topics: Domestic demand and componentsThe authors present an empirical model to forecast short-run inventory investment behaviour for Canada.
Topics: Domestic demand and components; Econometric and statistical methodsSome analysts believe that a sharp rise in equity values was an important factor in the strong consumer spending between 1995 and 2000. Empirical evidence suggests, however, that consumer spending responds more to changes in housing wealth than it does to equity wealth. Pichette reports findings from an earlier study by Pichette and Tremblay (2003) which used a vector-error-correction model to determine the long-run relationship between various components of wealth and consumer spending. The study found that consumption does not respond significantly to a permanent increase in stock market wealth, while a permanent increase in housing wealth leads to a significant rise in consumption. These findings suggest important implications for monetary policy decision-makers, since movements in wealth will also affect aggregate demand and inflation.
Topics: Domestic demand and componentsSince the autumn of 1997, the Bank of Canada's regional offices (located in Halifax, Montréal, Toronto, Calgary, and Vancouver) have conducted consultations with businesses across Canada on a quarterly basis. These consultations are now referred to as the Business Outlook Survey (BOS).
Topics: Business fluctuations and cycles; Domestic demand and componentsIn this paper, the authors use polynomial adjustment cost (PAC) models to analyze and forecast the main components of the U.S. trade sector.
Topics: Domestic demand and components; Econometric and statistical methods; International topicsThe authors examine the link between consumption and disaggregate wealth in Canada. They use a vector-error-correction model in which permanent and transitory shocks are identified using the restrictions implied by cointegration proposed by King, Plosser, Stock, and Watson (1991) and Gonzalo and Granger (1995).
Topics: Domestic demand and componentsThis paper assesses the usefulness of consumer confidence indexes in forecasting aggregate consumer spending in the United States.
Topics: Domestic demand and components; Economic models; International topicsThe substantial growth in wealth over the course of the second half of the 1990s generated the equivalent of a certain level of savings, while simultaneously causing household savings rates to fall significantly. The author seeks to explain this decline in savings, observed since 1995, using the methodology developed by King, Plosser, Stock, and Watson (1991).
Topics: Domestic demand and componentsThis paper examines the structural determinants of the personal savings rate in Canada over the last 30 years, using cointegration techniques. The main finding is that the real interest rate, expected inflation, the ratio of the all-government fiscal balances to nominal GDP, and the ratio of household net worth to personal disposable income are the most [...]
Topics: Domestic demand and componentsThis study examines the link between consumer expenditures and the Conference Board's Index of Consumer Attitudes, an index highly regarded for some time as a useful leading indicator of consumer expenditures. However, the theory that identifies why it may be useful in an analysis of consumption is less well established. To explore this question, we [...]
Topics: Domestic demand and components; Economic modelsSwings in inventory investment have traditionally played a major role in Canadian business cycles. However, advances in inventory-control techniques and the reduced uncertainty associated with lower inflation have enabled firms to manage their inventories much more tightly and effectively.
This article examines recent developments in the management of non-farm business inventories in Canada at both the aggregate and the sectoral level and looks at implications for the role of inventories as a source of economic fluctuation.
Topics: Domestic demand and componentsThe author develops a measure of aggregate private sector wealth in Canada and examines its ability to explain aggregate consumption of non-durables and services. This wealth measure includes financial, physical and human wealth. The author measures human wealth as the expected present value of aggregate labour income, net of government expenditures, based on a discrete [...]
Topics: Domestic demand and components
