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The heterogeneous effects of COVID‐19 on Canadian household consumption, debt and savings

The heterogeneous effects of COVID‐19 on Canadian household consumption, debt and savings This paper develops an agent‐based model to quantify the impact of COVID‐19 on household debt and savings. To build a representative cross‐section of households that vary by income, debt portfolios and consumption baskets, we merge data from the Survey of Household Spending and the Survey of Financial Security. We construct paths for consumption and employment over the crisis, accounting for heterogeneous risk of unemployment across demographics, government transfers, and substitution between expenditure categories that vary in contact intensity. Our model simulations yield a heterogeneous effect of COVID‐19 across the income distribution. Low‐income households face the highest risk of unemployment, but transfers provide generous income replacement. Middle‐income job losers see the fastest rise in debt because transfers only partially replace lost income. Most unplanned savings are accumulated by high‐income households that face lower risk of unemployment and larger declines in hard‐to‐distance spending. We find the rise in savings could generate a brief jump of nearly 6% of monthly consumption. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Canadian Journal of Economics/Revue Canadienne D'économique Wiley

The heterogeneous effects of COVID‐19 on Canadian household consumption, debt and savings

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References (32)

Publisher
Wiley
Copyright
© 2022 Canadian Economics Association
ISSN
0008-4085
eISSN
1540-5982
DOI
10.1111/caje.12546
Publisher site
See Article on Publisher Site

Abstract

This paper develops an agent‐based model to quantify the impact of COVID‐19 on household debt and savings. To build a representative cross‐section of households that vary by income, debt portfolios and consumption baskets, we merge data from the Survey of Household Spending and the Survey of Financial Security. We construct paths for consumption and employment over the crisis, accounting for heterogeneous risk of unemployment across demographics, government transfers, and substitution between expenditure categories that vary in contact intensity. Our model simulations yield a heterogeneous effect of COVID‐19 across the income distribution. Low‐income households face the highest risk of unemployment, but transfers provide generous income replacement. Middle‐income job losers see the fastest rise in debt because transfers only partially replace lost income. Most unplanned savings are accumulated by high‐income households that face lower risk of unemployment and larger declines in hard‐to‐distance spending. We find the rise in savings could generate a brief jump of nearly 6% of monthly consumption.

Journal

Canadian Journal of Economics/Revue Canadienne D'économique – Wiley

Published: Feb 1, 2022

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