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

Francisco Ramírez de León ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study provides evidence of the relationship between credit and real activity in Central America and the Dominican Republic. We address the empirics of the link between credit and real activity 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 relationship. We find a positive relationship between credit and real activity in frequencies associated to business cycles for all countries. The credit - economic relationship 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 8 years for mentioned economies. In case of Guatemala there is no evidence of statistical precedence of credit to economic activity.

Keywords: Credit; Business Cycles; Spectral Analysis; Granger Causality (search for similar items in EconPapers)
JEL-codes: C32 E32 E51 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-lam and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:50332

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