G5 - Household Finance

• Consumer Credit Regulation and Lender Market Power

  Staff Working Paper 2024-36 Zachary Bethune, Joaquín Saldain, Eric R. Young

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial markets, Interest rates JEL Code(s): D, D1, D15, D4, D43, D6, D60, D8, D83, E, E2, E21, G, G5, G51

• Housing Affordability and Parental Income Support

  Staff Working Paper 2024-28 Jason Allen, Kyra Carmichael, Robert Clark, Shaoteng Li, Nicolas Vincent

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial services, Financial system regulation and policies, Housing JEL Code(s): D, D6, D64, E, E2, E21, E24, G, G1, G18, G5, G51

• Central Bank Digital Currency and Transmission of Monetary Policy

  Staff Working Paper 2024-27 Saroj Bhattarai, Mohammad Davoodalhosseini, Zhenning Zhao

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Digital currencies and fintech, Interest rates, Monetary policy, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E3, E31, E4, E5, E50, E58, G, G2, G21, G5, G51

• Credit Card Minimum Payment Restrictions

  Staff Working Paper 2024-26 Jason Allen, Michael Boutros, Benedict Guttman-Kenney

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Financial system regulation and policies JEL Code(s): D, D1, D18, E, E2, E21, G, G2, G28, G5, G51

• Impacts of interest rate hikes on the consumption of households with a mortgage

  Staff Analytical Note 2024-14 Panagiotis Bouras, Joaquín Saldain, Xing Guo, Thomas Michael Pugh, Maria teNyenhuis

  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.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Interest rates, Monetary policy, Recent economic and financial developments JEL Code(s): D, D1, D13, E, E2, E21, G, G5

• The Macroeconomic Implications of Coholding

  Staff Working Paper 2024-16 Michael Boutros, Andrej Mijakovic

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Economic models, Fiscal policy, Monetary policy JEL Code(s): E, E2, E21, E4, E44, E6, E62, G, G5, G51

• Unintended Consequences of the Home Affordable Refinance Program

  Staff Working Paper 2024-11 Phoebe Tian, Chen Zheng

  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.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions JEL Code(s): G, G2, G21, G5, G51, L, L5, L51

• Measuring household financial stress in Canada using consumer surveys

  Staff Analytical Note 2024-5 Nicolas Bédard, Patrick Sabourin

  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.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Domestic demand and components, Financial stability, Monetary policy transmission, Recent economic and financial developments JEL Code(s): D, D1, D14, G, G5, H, H3

• Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans

  Staff Working Paper 2024-1 Shihan Xie, Victoria Wenxin Xie, Xu Zhang

  This paper explores the impact of extreme weather exposures on the financial outcomes of low-income households. Our findings highlight the heightened financial vulnerability of low-income households to environmental shocks and underscore the need for targeted policies.

  Content Type(s): Staff research, Staff working papers Topic(s): Climate change, Credit and credit aggregates JEL Code(s): G, G5, Q, Q5, Q54

• Modelling Canadian mortgage debt and payments in a semi-structural model

  Staff Analytical Note 2024-1 Fares Bounajm, Austin McWhirter

  We show how Canadian mortgage debt dynamics can be modelled in a semi-structural macroeconomic model, such as the Bank of Canada’s LENS. The model we propose accounts for Canada’s unique mortgage debt structure.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Economic models, Monetary policy transmission JEL Code(s): E, E2, E27, E4, E43, E47, G, G5, G51