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This note analyzes mortgage stress tests, a macroprudential tool. We find that when mortgage stress tests are applied to all mortgage purchase originations, they improve credit quality and reduce credit and house price growth. They also improve the resilience of borrowers to financial shocks, such as the large increase in interest rates during 2022–23.

We explain how housing supply elasticities for Canadian cities are estimated. The procedure we use exploits the systematic differences in various cities’ sensitivity to regional house-price cycles.