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Title:Consumption, housing collateral, and the Canadian business cycle PDF Logo
Authors:Christensen, Ian
Corrigan, Paul
Mendicino, Caterina
Nishiyama, Shin-ichi
Issue Date:2009
Series/Report no.:Bank of Canada working paper 2009,26
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.
Subjects:Business fluctuations and cycles
Credit and credit aggregates
Transmission of monetary policy
JEL:E21
E32
E44
E52
R21
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

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