Household borrowing constraints and monetary policy in emerging economies

Arruda Gustavo, Lima Daniela and Vladimir Teles ()
Additional contact information
Arruda Gustavo: Fundacao Getulio Vargas, Sao Paulo School of Economics – FGV, São Paulo SP, Brazil
Lima Daniela: Fundacao Getulio Vargas, Sao Paulo School of Economics – FGV, São Paulo SP, Brazil

The B.E. Journal of Macroeconomics, 2020, vol. 20, issue 1, 21

Abstract: Credit markets in emerging economies can be distinguished from those in advanced economies in many respects, including the collateral required for households to borrow. This work proposes a DSGE framework to analyze one peculiarity that characterizes the credit markets of some emerging markets: payroll-deducted personal loans. We add the possibility for households to contract long-term debt and compare two different types of credit constraints with one another, one based on housing and the other based on future income. We estimate the model for Brazil using a Bayesian technique. The model is able to solve a puzzle of the Brazilian economy: responses to monetary shocks at first appear to be strong but dissipate quickly. This occurs because income – and the amount available for loans – responds more rapidly to monetary shocks than housing prices. To smooth consumption, agents (borrowers) compensate for lower income and for borrowing by working more hours to repay loans and erase debt in a shorter time. Therefore, in addition to the income and substitution effects, workers consider the effects on their credit constraints when deciding how much labor to supply, which becomes an additional channel through which financial frictions affect the economy.

Keywords: credit constrains; emerging markets; monetary policy (search for similar items in EconPapers)
JEL-codes: E20 E44 E51 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/bejm-2017-0121 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Household borrowing constraints and monetary policy in emerging economies (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:20:y:2020:i:1:p:21:n:11

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejm/html

DOI: 10.1515/bejm-2017-0121

Access Statistics for this article

The B.E. Journal of Macroeconomics is currently edited by Arpad Abraham and Tiago Cavalcanti

More articles in The B.E. Journal of Macroeconomics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().