INTEREST-RATE ELASTICITIES AND CANADIAN HOUSEHOLD PORTFOLIO ALLOCATION

This article studies the responsiveness of Canadian household portfolios to changes in wealth, income levels, and interest rates by estimating the complete system of demand equations for financial assets and liabilities for the Canadian household sector, and then calculating the wealth, income, and interest-rate elasticities. The demand equations for the financial securities are derived from a modified version of the Generalized Linear Expenditure System; the estimation method employs the full information maximum likelihood routine. The demand equations involve six assets and two household liabilities covering the period 1965 to 1987.