Financial and real effects of pandemic credit policies: an application to Chile

Felipe Garcés, Juan Francisco Martínez, Udara Peiris and Dimitrios Tsomocos

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: The economic disruption of the COVID-19 pandemic triggered the deployment of a plethora of conventional and unconventional policies. Whilst the policies, in general, are believed to have prevented a more calamatous economic decline, it has been difficult to disentangle the effects of policies from the counterfactual path of the economy. In this paper we estimate a medium scale DSGE model, with a banking sector, and use observed policy responses to extract the underlying shocks characterising the economic effects of the COVID-19 pandemic in Chile. We find that GDP contracted by 10% less because of the pandemic policies while credit policies helped to boost the commercial portfolio by an additional 14% and 12% of accumulated annual growth, for big and small banks respectively, with a limited increase in non-performing loans in the first group of banks. We argue that this and other findings relative to heterogeneity are useful when designing policies transmitted through the banking sector.

Date: 2023-08
New Economics Papers: this item is included in nep-ban and nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:990

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