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Consumption, Housing Collateral, and the Canadian Business Cycle

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Author Info
Ian Christensen
Paul Corrigan
Caterina Mendicino
Shin-Ichi Nishiyama

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Abstract

Using Bayesian methods, we estimate a small open economy model in which consumers face limits to credit determined by the value of their housing stock. The purpose of this paper is to quantify the role of collateralized household debt in the Canadian business cycle. Our findings show that the presence of borrowing constraints improves the performance of the model in terms of overall goodness of fit. In particular, the presence of housing collateral generates a positive correlation between consumption and house prices. Finally we find that housing collateral induced spillovers account for a large share of consumption growth during the housing market boom-bust cycle of the late 1980s.

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File URL: http://www.bankofcanada.ca/en/res/wp/2009/wp09-26.pdf
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Publisher Info
Paper provided by Bank of Canada in its series Working Papers with number 09-26.

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Length: 49 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bca:bocawp:09-26

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Related research
Keywords: Business fluctuations and cycles; Credit and credit aggregates; Transmission of monetary policy;

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand

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This page was last updated on 2009-11-24.

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