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The Relation Between Credit and Business Cycles in Central America and the Dominican Republic

Francisco Ramírez de León ()

Chapter 4 in Monetary Policy and Financial Stability in Latin America and the Caribbean, 2018, pp 107-131 from Centro de Estudios Monetarios Latinoamericanos, CEMLA

Abstract: This study provides evidence of the relation between credit and real activity in Central America and the Dominican Republic (DR). The link between credit and real activity is addressed for the case of a group of developing countries with limited financial markets where bank credit is the main source of external finance for the private sector. We compile information of credit to the private sector and the aggregate economic activity for Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua and the DR. The data is analyzed using simple statistical tools (Granger causality tests and spectral analysis) to identify stylized facts on the credit-activity relation. We find a positive relation between credit and real activity in frequencies associated to business cycles for all countries. The credit-economic relation in cycles lasting 10 or more years seems relevant in Costa Rica and the DR. There is evidence suggesting that credit precedes economic activity at business cycles frequencies in Costa Rica, El Salvador, Honduras, Nicaragua and the dr. Excluding Nicaragua, this pattern is observed also in cycles over eight years for mentioned economies. In case of Guatemala there is no evidence of statistical precedence of credit to economic activity.

Keywords: credit cycle; banking credit; business cycle; developing countries; Central America; Dominican Republic. (search for similar items in EconPapers)
JEL-codes: C32 E32 E51 (search for similar items in EconPapers)
Date: 2018
ISBN: 978-607-7734-89-5 (printed)
Note: Joint Research Program XIX Meeting of the Central Bank Researchers Network
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