Using a unique micro-dataset containing real and financial information on Canadian households for 2000–07, the authors address two questions: (1) What is the proportion of households whose consumption displays excess sensitivity to income, and who are likely liquidity constrained?
Topics: Economic models; Sectoral balance sheetThe purpose of this paper is twofold. First, we provide a detailed social accounting matrix (SAM), which incorporates the income and financial flows into the standard input-output matrix, for the Canadian economy for 2004.
Topics: Economic models; Financial markets; Sectoral balance sheetThe lack of consolidated Canadian micro data on household balance sheets and expenditures has been an important impediment to empirical research into real-financial linkages in the Canadian household sector. Our paper attempts to fill this data gap by merging household balance sheet data from the Canadian Financial Monitor survey with household expenditure data from the Survey of Household Spending.
Topics: Sectoral balance sheetThe authors use microdata from the 1999 and 2005 Surveys of Financial Security to identify changes in household debt, and discuss their potential implications for monetary policy and financial stability. They document an increase in the debt-income ratio, which rose from 0.75 to 0.95, on average.
Topics: Credit and credit aggregates; Financial stability; Productivity; Sectoral balance sheetOne of the most important arguments in favour of price stability is that unexpected inflation generates changes in the distribution of income and wealth among different economic agents. These redistributions occur because many loans are specified in fixed dollar terms and unexpected inflation redistributes wealth from creditors to debtors by reducing the real value of nominal assets and liabilities. This article quantifies the redistributional effects of unexpected inflation in Canada, providing comprehensive evidence of the nominal assets and liabilities of various economic sectors and household groups. A key finding is that the redistributional effects of unexpected inflation are large even with episodes of low inflation. The main winners are young, middle-income households who are major holders of fixed-rate mortgage debt and the government–inflation reduces the real burden of their debt. The losers are high-income households and middle-aged, middle-income households that hold long-term bonds and non-indexed pension wealth.
Topics: Central bank research; Inflation and prices; Inflation: costs and benefits; Sectoral balance sheetThe proportion of assets held by the average Canadian firm in the form of cash has increased steadily since the early 1990s, and is now roughly twice as large as in 1990. The literature has established that the cash-holding behaviour of firms is highly correlated with financial constraints and firm characteristics.
Topics: Sectoral balance sheetSince the work of Doepke and Schneider (2006a) and Meh and Terajima (2008), we know that inflation causes major redistribution of wealth – between households and the government, between nationals and foreigners, and between households within the same country.
Topics: Economic models; Inflation and prices; Inflation targets; Inflation: costs and benefits; Monetary policy framework; Sectoral balance sheetThere is currently a policy debate on potential refinements to monetary policy regimes in countries with low and stable inflation such as the U.S. and Canada. For example, in Canada, a systematic review of the current inflation targeting framework is underway.
Topics: Inflation and prices; Inflation targets; Inflation: costs and benefits; Monetary policy framework; Sectoral balance sheetIn this article, the author examines the maturity structure of the household sector's balance sheet and the degree of interest rate variability of household loans and financial assets. The bulk of households' interest-bearing assets and financial liabilities consists of medium- and long-term, fixed-rate instruments.
The pattern of personal consumption is therefore influenced more by the wealth effects of interest rate changes than by their income effects, and the full impact of a permnent shift in interest rates on consumption will become apparent only after a lag.
Topics: Sectoral balance sheetTrusteed pension funds are one of the most important sources of retirement income for Canadians. They have also been one of the fastest-growing sectors of the Canadian financial market. Trusteed pension funds play an important role in capital markets, channelling billions of dollars of their members' contributions into investments in financial and real assets.
This article presents an overview of the trusteed pension funds sector. It provides a context for this overview by briefly presenting other sources of retirement income in Canada. It then examines the sources of the sector's rapid growth, including regulatory developments that have affected it, namely the increase in allowable foreign content and the adoption of the prudent person rule. Finally, it looks at the evolution of the sector's asset mix and how the sector interacts with capital markets.
Topics: Financial Institutions; Sectoral balance sheetIn this study, the author examines the hypothesis of private-sector debt overhang, which suggests that households and businesses may on occasion find themselves holding too much debt and so decide to reduce it by cutting back expenditures. His aim is to determine whether this hypothesis can help explain the weakness of credit growth and the sluggishness of the recent economic recovery in Canada.
Topics: Sectoral balance sheet
