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37 Results

Consumer Credit with Over-optimistic Borrowers

When lenders cannot directly identify behavioural and rational borrowers, they use type scoring to track the likelihood of a borrower’s type. This leads to the partial pooling of borrowers, which results in rational borrowers subsidizing borrowing costs for behavioural borrowers. This, in turn, reduces the effectiveness of regulatory policies that target mistakes by behavioural borrowers.

The Heterogeneous Effects of COVID-19 on Canadian Household Consumption, Debt and Savings

Staff Working Paper 2020-51 James (Jim) C. MacGee, Thomas Michael Pugh, Kurt See
The impact of COVID-19 on Canadian households’ debt and unplanned savings varies by household income. Low-income and high-income households accrued unplanned savings, while middle-income households tended to accumulate more debt.

Home Equity Extraction and Household Spending in Canada

Staff Analytical Note 2019-27 Anson T. Y. Ho, Mikael Khan, Monica Mow, Brian Peterson
We use rich microdata to measure home equity extraction in Canada and track its evolution over time. We find home equity extraction has been rising in recent years and has likely contributed materially to dynamics in household spending.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial stability, Housing JEL Code(s): D, D1, D12, E, E2, E21, G, G2, G20

Disaggregating Household Sensitivity to Monetary Policy by Expenditure Category

Staff Analytical Note 2018-32 Tony Chernis, Corinne Luu
Because the Bank of Canada has started withdrawing monetary stimulus, monitoring the transmission of these changes to monetary policy will be important. Subcomponents of consumption and housing will likely respond differently to a monetary policy tightening, both in terms of the aggregate effect and timing.

The Welfare Cost of Inflation Revisited: The Role of Financial Innovation and Household Heterogeneity

We document that, across households, the money consumption ratio increases with age and decreases with consumption, and that there has been a large increase in the money consumption ratio during the recent era of very low interest rates. We construct an overlapping generations (OLG) model of money holdings for transaction purposes subject to age (older households use more money), cohort (younger generations are exposed to better transaction technology), and time effects (nominal interest rates affect money holdings).
Content Type(s): Staff research, Staff working papers Topic(s): Inflation: costs and benefits JEL Code(s): E, E2, E21, E4, E41

Reconciling Jaimovich-Rebelo Preferences, Habit in Consumption and Labor Supply

Staff Working Paper 2018-26 Tom D. Holden, Paul Levine, Jonathan Swarbrick
This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady-state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply.

Did U.S. Consumers Respond to the 2014–2015 Oil Price Shock? Evidence from the Consumer Expenditure Survey

Staff Working Paper 2018-13 Patrick Alexander, Louis Poirier
The impact of oil price shocks on the U.S. economy is a topic of considerable debate. In this paper, we examine the response of U.S. consumers to the 2014–2015 negative oil price shock using representative survey data from the Consumer Expenditure Survey.

Can the Common-Factor Hypothesis Explain the Observed Housing Wealth Effect?

Staff Working Paper 2016-62 Narayan Bulusu, Jefferson Duarte, Carles Vergara-Alert
The common-factor hypothesis is one possible explanation for the housing wealth effect. Under this hypothesis, house price appreciation is related to changes in consumption as long as the available proxies for the common driver of housing and non-housing demand are noisy and housing supply is not perfectly elastic.
Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Housing JEL Code(s): E, E2, E21, R, R3, R31

Capital Flows to Developing Countries: Is There an Allocation Puzzle?

Staff Working Paper 2016-53 Josef Schroth
Foreign direct investment inflows are positively related to growth across developing countries—but so are savings in excess of investment. I develop an explanation for this well-established puzzle by focusing on the limited availability of consumer credit in developing countries together with general equilibrium effects.