This note presents a composite indicator of Canadian financial system vulnerabilities—the Vulnerabilities Barometer. It aims to complement the Bank of Canada’s vulnerabilities assessment by adding a quantitative and synthesized perspective to the more granular (distributional) analysis presented in the Financial System Review.
Stock market fundamentals would not seem to meaningfully predict returns over a shorter-term horizon—instead, I shift focus to severe downside risk (i.e., crashes).
Household debt can be an important source of vulnerability to the financial system. This technical report describes the Household Risk Assessment Model (HRAM) that has been developed at the Bank of Canada to stress test household balance sheets at the individual level.
This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers.
Over the past decade, an increasing proportion of households in Canada have become highly indebted relative to their income. These highly indebted households now hold one-fifth of total Canadian household debt.Simulations suggest that this greater degree of household indebtedness could exacerbate the impact of shocks to income and interest rates relative to the pre-crisis period. However, an assessment of the vulnerability of the Canadian financial system should, among other factors, account for the ability of Canadian financial institutions to withstand losses from the household sector.
"The Impact of Macroprudential Housing Finance Tools in Canada"
(with Jason Allen, and Brian Peterson), Journal of Financial Intermediation (forthcoming).
