Articles
DOI DOI: 10.5281/zenodo.18435870

Macro-Financial Spillovers to Canada U.S. Rate Shocks, Housing Leverage, and Bank Stability Channels

Gonzalo Romero1
  1. 1 University of Toronto – Rotman School of Management

Abstract

This study examines how U.S. monetary policy shocks are transmitted to the
Canadian financial system, with particular emphasis on housing leverage and
banking-sector stability. monetary policy shocks to the Canadian financial
system, with particular emphasis on housing leverage and banking-sector
stability. Using a macro-financial framework, the paper analyses how U.S.
interest rate increases propagate through cross-border financial linkages, affect
household balance sheets, and influence Canadian banks’ risk exposure. The
analysis combines macroeconomic indicators, housing market leverage metrics,
and bank-level stability measures to find the most important spillover channels.
Empirical evidence suggests that elevated household indebtedness amplifies
external monetary shocks, increasing vulnerability within the banking sector
through credit quality deterioration and funding cost pressures. The findings
highlight the critical role of macroprudential regulation in mitigating spillover
risks and preserving financial stability in small, open economies closely
integrated with the U.S. financial markets. Policy implications are discussed in
the context of coordinated monetary and macroprudential responses.

How to Cite

Romero, G. (2026). Macro-Financial Spillovers to Canada U.S. Rate Shocks, Housing Leverage, and Bank Stability Channels. Transnational Academic Journal of Economics, 3(1), 111–130. https://doi.org/10.5281/zenodo.18435870
Endnote/Zotero/Mendeley (RIS) BibTeX

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