Macroeconomic Effects of Credit Deepening in Latin America

Carlos Carvalho, Nilda Pasca, Laura Souza and Eduardo Zilberman

Journal of Money, Credit and Banking, 2023, vol. 55, issue 7, 1817-1855

Abstract: We augment a standard dynamic general equilibrium model with financial frictions, in order to quantify the macroeconomic effects of the credit deepening process observed in Latin America in the 2000s—most notably in Brazil. In the model, a stylized banking sector intermediates credit from patient households to impatient households and entrepreneurs. Motivated by the Brazilian experience, we allow the credit constraint faced by households to depend on labor income. Our model is designed to isolate the effects of credit deepening through demand‐side channels, and abstracts from potential effects of credit supply on total factor productivity. In the calibrated model, credit deepening generates only modest above‐trend growth in consumption, investment, and GDP. Since Brazil has experienced one of the most intense credit deepening processes in Latin America, we argue the quantitative effects that hinge on the channels captured by the model are unlikely to be sizable elsewhere in Latin America.

Date: 2023
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https://doi.org/10.1111/jmcb.12936

Related works:
Working Paper: Macroeconomic Effects of Credit Deepening in Latin America (2019)
Working Paper: Macroeconomic Effects of Credit Deepening in Latin America (2015)
Working Paper: Macroeconomic Effects of Credit Deepening in Latin America (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:55:y:2023:i:7:p:1817-1855

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