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91 Results

Update on housing market imbalances and household indebtedness

Staff Analytical Note 2021-4 Mikael Khan, Olga Bilyk, Matthew Ackman
Exceptional strength in the housing market during the pandemic is underpinning Canada’s economic recovery. However, two key vulnerabilities—housing market imbalances and elevated household indebtedness—have intensified.

Debt-Relief Programs and Money Left on the Table: Evidence from Canada's Response to COVID-19

Staff Working Paper 2021-13 Jason Allen, Robert Clark, Shaoteng Li, Nicolas Vincent
During the COVID-19 pandemic, Canadian financial institutions offered debt-relief programs to help borrowers cope with job losses and economic insecurity. We consider the low take-up rates for these programs and suggest that to be effective, such programs must be visible and easy to use.

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.

Household indebtedness risks in the wake of COVID‑19

Staff Analytical Note 2020-8 Olga Bilyk, Anson T. Y. Ho, Mikael Khan, Geneviève Vallée
COVID-19 presents challenges for indebted households. We assess these by drawing parallels between pandemics and natural disasters. Taking into account the financial health of the household sector when the pandemic began, we run model simulations to illustrate how payment deferrals and the labour market recovery will affect mortgage defaults.

How Do Mortgage Rate Resets Affect Consumer Spending and Debt Repayment? Evidence from Canadian Consumers

Staff Working Paper 2020-18 Katya Kartashova, Xiaoqing Zhou
We study the causal effect of mortgage rate changes on consumer spending, debt repayment and defaults during an expansionary and a contractionary monetary policy episode in Canada. We find asymmetric responses of consumer durable spending, deleveraging and defaults. These findings help us to understand household sector response to interest rate changes.