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Panel discussion on household debt in Canada

Panel discussion on household debt in Canada. 2011 CEA Conference. Umar Faruqui Financial Stability Department Bank of Canada.

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Panel discussion on household debt in Canada

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  1. Panel discussion on household debt in Canada 2011 CEA Conference Umar Faruqui Financial Stability Department Bank of Canada Disclaimer: The views express in this presentation, or in my remarks, are my own, and do not necessarily represent those of the Bank of Canada’s Governing Council.

  2. Goals of this panel presentation • Give insights into how researchers at the Bank of Canada view and use micro/macro data on household balance sheets • Outline some of the research currently underway at the Bank on household indebtedness. • Highlight areas which need to be developed further in order to further our understanding of household debt behavior.

  3. Main takeaways from the presentation • Discrepancies between micro and macro-data should be expected and accepted. • Choice of micro vs. macro data on household finances depends on the questions we are asking of the data. • Better/more timely micro-data is important to continue improving our understanding of household debt behavior.

  4. Micro- vs. macro-data on household debt

  5. Micro- vs. macro-data on household debt: why the inconsistency? • Should we be worried? • Not necessarily. Number of reasons why the two estimates might be different. • Definition of variables • Coverage of data • But what if the differences can not be fully explained/rationalized? • Data revisions for macro-data

  6. Mixed use of micro- and macro-data on household finances • Macro data as summary of broad trends…. • …but micro data is the workhorse in analyzing key questions about household debt behavior • We use a number of micro-data sets including SFS, SHS, CFM, Equifax, and OSB micro-data on insolvency • Main reason is that aggregate data can mask distributional issues: • For e.g. : Aggregate indebtedness statistics suggest reason for concern but only if debt is being taken by those not able to handle the higher debt level

  7. The Bank is continuing to improve its understanding of household debt behaviour • Two projects that I am currently working on are: • Investigating the fundamental drivers of household credit growth in Canada since 2000. • Identifying the key factors that determine household insolvency in Canada.

  8. Project 1: Investigating the drivers of household credit growth in Canada since 2000. • Data Set: CFM micro-data for 1999-2010 • Was debt growth demand or supply driven? • Easing of credit constraints vs. easier borrowing conditions. • What impact did house prices have on debt growth? • What role did demographic shifts play?

  9. Project 1: Investigating the fundamental drivers of household credit growth in Canada since 2000.

  10. Project 1: Investigating the fundamental drivers of household credit growth in Canada since 2000.

  11. Project 2: Identifying the key factors that determine household insolvency in Canada. • Data Set: OSB micro-data on insolvent households and CFM micro-data; 2003-2010. • What micro and macro factors contribute to household insolvency? • Main use would be for our FSR stress test of the household sector.

  12. Some areas need further work in order to advance our understanding of household behaviour • More/better micro-data is key. • Enhanced and more frequent household surveys by Statistics Canada would be a step forward. • CBA can also help advance the cause by allowing researchers access to a (random sample of) micro-data on household loans • Better awareness amongst academics and market analysts of the strengths and weaknesses of using micro-data • When to use it and when not to use it.

  13. Summary • Discrepancies between micro and macro-data should be expected and accepted. • Both micro and macro-data on household finances are important in their own right and neither set gives the full picture of the underlying reality. • Choice of micro vs. macro data on household finances depends on the questions we are asking of the data. • Micro-data are essential to explore distributional issues related to household indebtedness. • Better/more timely micro-data is important to continue improving our understanding of household debt behavior.

  14. Questions/Comments?

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