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

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  • James MacGee
  • Thomas Michael Pugh
  • Kurt See
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. Effets hétérogènes de la COVID‐19 sur la consommation, la dette et l'épargne des foyers canadiens. Dans cet article, nous développons un modèle multiagent afin de chiffrer l'impact de la COVID‐19 sur la dette et l'épargne des ménages. Compte tenu des disparités en matière de revenus, de portefeuilles de dettes ou de paniers de consommation, et afin d'obtenir un échantillonnage représentatif des foyers, nous avons fusionné les données de l'Enquête sur les dépenses des ménages et celles de l'Enquête sur la sécurité financière. Nous développons ensuite les trajectoires de la consommation et de l'emploi pendant la crise en tenant compte à la fois du risque hétérogène de chômage parmi les groupes démographiques, des transferts gouvernementaux et de la substitution parmi les catégories de dépenses nécessitant plus ou moins de distanciation physique. Les simulations de notre modèle montrent que la COVID‐19 produit un effet hétérogène sur la distribution des revenus. Les ménages à faible revenu connaissent le plus grand risque de chômage, mais les transferts constituent de généreux revenus de remplacement. Les ménages à revenu moyen ayant subi des pertes d'emploi voient leur dette augmenter le plus rapidement, les transferts ayant seulement compensé une partie de leur baisse de revenus. Quant aux ménages à revenu élevé, ils ont accumulé la plus grande partie de l'épargne non planifiée, car ils sont moins susceptibles que les autres d'être touchés par des mises á pied et font face à des baisses de dépense plus importantes en matiére de biens et services restreints par la distanciation physique (hard‐to‐distance spending). Nous constatons que la hausse de l'épargne pourrait générer un bref regain de la consommation mensuelle de près de 6 %.

Suggested Citation

  • James MacGee & Thomas Michael Pugh & Kurt See, 2022. "The heterogeneous effects of COVID‐19 on Canadian household consumption, debt and savings," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 54-87, February.
    • Handle: RePEc:wly:canjec:v:55:y:2022:i:s1:p:54-87
    DOI: 10.1111/caje.12546
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    Cited by:

    1. Cars Hommes & Mario He & Sebastian Poledna & Melissa Siqueira & Yang Zhang, 2022. "CANVAS: A Canadian Behavioral Agent-Based Model," Staff Working Papers 22-51, Bank of Canada.
    2. Duarte Maia, 2023. "Prudential policy treatments to the COVID-19 economic crisis: an assessment of the effects," Working Papers w202314, Banco de Portugal, Economics and Research Department.
    3. Oleksiy Kryvtsov & James (Jim) C. MacGee & Luis Uzeda, 2023. "The 2021–22 Surge in Inflation," Discussion Papers 2023-3, Bank of Canada.
    4. Donald Coletti, 2023. "A Blueprint for the Fourth Generation of Bank of Canada Projection and Policy Analysis Models," Discussion Papers 2023-23, Bank of Canada.
    5. Martin Kuncl & Austin McWhirter & Alexander Ueberfeldt, 2021. "The uneven economic consequences of COVID 19: A structural analysis," Staff Analytical Notes 2021-17, Bank of Canada.

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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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