Financial frictions affect how much consumers spend on durable and non-durable goods. Borrowers can face both loan-to-value (LTV) constraints and payment-to-income (PTI) constraints.
Cash use for payments has been steadily decreasing in many countries, including Canada and Sweden. This might suggest an evolution toward a cashless society. But in Canada, cash in circulation relative to GDP has been stable for decades and has even increased in recent years. By contrast, the cash-to-GDP ratio in Sweden has been falling steadily. What has caused this difference? Are there lessons to be learned from comparing the Canadian and Swedish experiences?