Countercyclical credit policies and banking concentration: Evidence from Brazil

Paulo Capeleti, Marcio Garcia and Fabio Miessi Sanches

Journal of Banking & Finance, 2022, vol. 143, issue C

Abstract: We study the asymmetric effects of procyclical and countercyclical expansions of public banks’ credit on economic growth. Using a panel of Brazilian municipalities (2009–2014) and the same identification strategy as Greenstone et al. (2020), we show that the effect of public credit on the economic performance of Brazilian municipalities was more substantial in 2009, the only year in our sample in which the public credit policy was countercyclical. Interestingly, our estimates also suggest that the effect of credit policies on growth is more salient when the banking market is more concentrated. Guided by the empirical results we built a theoretical model, which is calibrated with Brazilian data. Policy experiments based on the model demonstrate that countercyclical public credit policies are more effective than procyclical public credit policies. In line with the empirical results, the theoretical model also shows that public credit policies in general (either in booms or in recessions) are more efficient when credit markets are more concentrated. This result indicates that the structure of credit markets is crucial to explain the impact of public credit policies on growth.

Keywords: Banking industry; Oligopoly; Governmental loans (search for similar items in EconPapers)
JEL-codes: H81 L10 L13 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:143:y:2022:i:c:s0378426622001856

DOI: 10.1016/j.jbankfin.2022.106589

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