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

James (Jim) MacGee (), Thomas Michael Pugh and Kurt See ()

Staff Working Papers from Bank of Canada

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.

Keywords: Business fluctuations and cycles; Coronavirus disease (COVID-19); Financial stability (search for similar items in EconPapers)
JEL-codes: E2 E21 E24 G51 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2020-11
New Economics Papers: this item is included in nep-mac
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Journal Article: The heterogeneous effects of COVID‐19 on Canadian household consumption, debt and savings (2022) Downloads
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