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Consumption, Housing Collateral, and the Canadian Business Cycle

Ian Christensen (), Paul Corrigan, Caterina Mendicino () and Shin-Ichi Nishiyama

Staff Working Papers from Bank of Canada

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.

Keywords: Business fluctuations and cycles; Credit and credit aggregates; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 E52 R21 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2009
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-ure
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Journal Article: Consumption, housing collateral and the Canadian business cycle (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:09-26

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