Debt and credit: Recent Canadian developments

In our examination of how recent developments (to 1988) in debt and credit markets have affected the Canadian economy, we compare the recent experience of borrower behavior in Canada with that in the United States, looking at debt-GDP ratios for various sectors and the corporate debt-equity ratio. In the late 1980s, the key differences between the two countries in the financial behavior of both the household and corporate sectors derive, we believe, from the sharper shock faced by Canadians in the early 1980s. Our examination of the relationship between credit growth and the growth of spending in the Canadian economy utilizes credit-indicator models developed at the Bank of Canada. We find that over the 1980–1987 period forecasts of the growth of real GDP and nominal GDP based on indicator models using real total household credit and nominal consumer credit, respectively, have narrowly outperformed the best bivariate monetary indicator models.