Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197859 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2018-6
Publisher: 
Bank of Canada, Ottawa
Abstract: 
The consumption boom-bust cycle in the 2000s coincided with large fluctuations in the volume of home equity borrowing. Contrary to conventional wisdom, I show that homeowners largely borrowed for residential investment and not consumption. I rationalize this empirical finding using a calibrated two-goods, multiple-assets, heterogeneous-agent life-cycle model with borrowing frictions. The model replicates key features of the household-level and aggregate data. The model offers an alternative explanation of the consumption boom-bust cycle. This cycle is caused by large fluctuations in the number of borrowers and hence in total home equity borrowing, even though the fraction of borrowed funds spent on consumption is small.
Subjects: 
Economic models
Housing
Credit and credit aggregates
JEL: 
D1
E2
E3
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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