Consumption, housing collateral and the Canadian business cycle

Ian Christensen, Paul Corrigan, Caterina Mendicino, Shin Ichi Nishiyama

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

How important are collateral constraints for reproducing salient features of the data? To address this question, we estimate two nested versions of a New Keynesian model: one with collateralized household debt and the frictionless version of the same model. Both versions of the model are fit to Canadian data using Bayesian methods. We argue that the presence of collateral constraints improves the performance of the model in terms of overall goodness of fit. Housing collateral helps to generate a positive correlation between consumption and house prices. Moreover, housing collateral induced spillovers boosted consumption growth during the housing market boom-bust cycles of the late 1980s and early 2000s.

Original languageEnglish
Pages (from-to)207-236
Number of pages30
JournalCanadian Journal of Economics
Volume49
Issue number1
DOIs
Publication statusPublished - 2016 Feb 1

ASJC Scopus subject areas

  • Economics and Econometrics

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