The Impact of REACTIVA on the Real Economy and on Bank Risk-Taking

Balila Acurio, Renzo Pardo, Jose-Luis Peydro and Jorge Pozo
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Balila Acurio: Banco Central de Reserva del Perú
Renzo Pardo: Banco Central de Reserva del Perú

No 2023-005, Working Papers from Banco Central de Reserva del Perú

Abstract: We analyze empirically the impact on the credit market, including bank risk-taking, as well as the associated real effects of REACTIVA Peru, a Peruvian public credit guaranteed program oriented to avoid a severe reduction in the economic activity and the credit market. We use matched administrative datasets: the exhaustive credit register and firm-level monthly employment data. Our results suggest that REACTIVA reduces bank risk (defaults) of the total credit portfolio, as well as it has a positive impact on the real economy – firm employment–, both at the intensive and extensive margins. In addition, our results suggest that in normal times there could be a trade-off between bank risk-taking and economic activity: REACTIVA avoids a stronger contraction of the real economy, due to a positive impact on employment, and increases bank willingness to take risk, captured by an increase of the risk of the non-REACTIVA credit portfolio. However, during the Covid-19 shock, this finding is associated with the desired impact of REACTIVA in diminishing any excessive increment of bank risk aversion.

Date: 2023-10
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