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

Author

Listed:
  • James (Jim) C. MacGee
  • Thomas Michael Pugh
  • Kurt See

Abstract

This paper develops an agent-based modelling approach to quantify the impact of COVID-19-induced economic disruptions on household debt and unplanned savings over 2020. We merge data from the Survey of Financial Security and the Survey of Household Spending to construct a representative cross-section of households who vary in their income, debt portfolios and mix of consumption expenditures. We simulate a series of individual and aggregate shocks to household income and consumption expenditures that incorporate government policies such as Canadian Emergency Response Benefit (CERB) as well as shifts in consumption expenditures across hard-to-distance goods (e.g., travel, restaurants) and easy-to-distance goods (e.g., groceries). Differential impact on household incomes resulting from unemployment and reduced hours play an important role in driving household debt and savings. We highlight two other important channels. First, income replacement programs (notably CERB) only partially replace lost income for unemployed, previously middle-income households—which drives a rise in borrowing, particularly for those with mortgages. Second, upper-income households have relatively larger expenditures on hard-to-distance goods and so experience larger declines in consumption expenditures. This contributes to the high savings observed during March and April.

Suggested Citation

  • James (Jim) C. MacGee & Thomas Michael Pugh & Kurt See, 2020. "The Heterogeneous Effects of COVID-19 on Canadian Household Consumption, Debt and Savings," Staff Working Papers 20-51, Bank of Canada.
  • Handle: RePEc:bca:bocawp:20-51
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    References listed on IDEAS

    as
    1. Olga Bilyk & Anson T. Y. Ho & Mikael Khan & Geneviève Vallée, 2020. "Household indebtedness risks in the wake of COVID‑19," Staff Analytical Notes 2020-8, Bank of Canada.
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    More about this item

    Keywords

    Business fluctuations and cycles; Coronavirus disease (COVID-19); Financial stability;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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