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 Research Topic(s): Financial institutions JEL Code(s): G, G2, G21, G5, G51, L, L5, L51 Research Theme(s): Financial system, Financial institutions and intermediation, Financial stability and systemic risk, Household and business credit
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 Research 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 Research Theme(s): Financial system, Household and business credit, Monetary policy, Real economy and forecasting
Monetary Policy Transmission Through Shadow and Traditional Banks Staff working paper 2024-8 Amina Enkhbold I investigate how monetary policy transmits to mortgage rates via the mortgage market concentration channel for both traditional and shadow banks in the United States from 2009 to 2019. On average, shadow and traditional banks exhibit only a slight disparity in transmitting monetary shocks to mortgage rates. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Interest rates, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, G, G2, G21 Research Theme(s): Financial system, Financial institutions and intermediation, Household and business credit, Monetary policy, Monetary policy framework and transmission
How changes in the share of constrained households affect the effectiveness of monetary policy Staff analytical note 2024-3 Felipe Alves, Sushant Acharya We measure how the change in the share of constrained households in Canada following the COVID-19 recession has impacted the effectiveness of monetary policy. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Coronavirus disease (COVID-19), Monetary policy transmission JEL Code(s): E, E2, E21, E4, E40, E5, E50 Research Theme(s): Financial system, Household and business credit, Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission
The Role of Long-Term Contracting in Business Lending Staff working paper 2024-2 Phoebe Tian This paper examines inefficiencies arising from a lack of long-term contracting in small business lending in China. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions JEL Code(s): D, D8, D83, D86, G, G2, G21, L, L1, L14, L2, L26 Research Theme(s): Financial system, Financial institutions and intermediation, Household and business credit, Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission
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 Research Topic(s): Climate change, Credit and credit aggregates JEL Code(s): G, G5, Q, Q5, Q54 Research Theme(s): Financial system, Household and business credit, Structural challenges, Climate change
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 Research Topic(s): Economic models, Monetary policy transmission JEL Code(s): E, E2, E27, E4, E43, E47, G, G5, G51 Research Theme(s): Financial system, Household and business credit, Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission
Monetary Policy and Racial Inequality in Housing Markets: A Study of 140 US Metropolitan Areas Staff working paper 2023-62 Qi Li, Xu Zhang We find that minority households see greater declines in housing returns and entries into homeownership than White households after a tightening of monetary policy. Our findings emphasize the unintended consequences of monetary policy on racial inequality in the housing market. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Housing, Monetary policy JEL Code(s): E, E4, E40, E5, E52, R, R0, R00 Research Theme(s): Financial system, Household and business credit, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission
Climate-Related Flood Risk to Residential Lending Portfolios in Canada Staff discussion paper 2023-33 Craig Johnston, Geneviève Vallée, Hossein Hosseini Jebeli, Brett Lindsay, Miguel Molico, Marie-Christine Tremblay, Aidan Witts We assess the potential financial risks of current and projected flooding caused by extreme weather events in Canada. We focus on the residential real estate secured lending (RESL) portfolios of Canadian financial institutions (FIs) because RESL portfolios are an important component of FIs’ balance sheets and because the assets used to secure such loans are immobile and susceptible to climate-related extreme weather events. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Climate change, Credit risk management, Econometric and statistical methods, Financial institutions, Financial stability JEL Code(s): C, C8, C81, G, G2, G21, Q, Q5, Q54 Research Theme(s): Financial system, Financial stability and systemic risk, Household and business credit, Structural challenges, Climate change
The impact of higher interest rates on mortgage payments Staff analytical note 2023-19 Maria teNyenhuis, Adam Su We investigate how the increase in interest rates since early 2022 is affecting mortgage payments. By November 2023, less than half of mortgage holders had faced higher payments. Many borrowers will see a sizable increase in payments at renewal, although income growth could help mitigate the impact. Content Type(s): Staff research, Staff analytical notes Research Topic(s): Credit and credit aggregates, Financial institutions, Interest rates, Recent economic and financial developments JEL Code(s): D, D1, E, E4, E5, G, G2, G21 Research Theme(s): Financial system, Household and business credit, Monetary policy, Monetary policy framework and transmission