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The role of credit supply shocks in pacific alliance countries: A TVP-VAR-SV approach

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  • Guevara, Carlos
  • Rodríguez, Gabriel

Abstract

This paper analyzes the effect of loan supply shocks on the real economic activity of Pacific Alliance countries using a Time-Varying Parameter VAR with Stochastic Volatility (TVP-VAR-SV) model which is identified by sign restrictions. Two main results arise from the analysis. First, loan supply shocks have an important impact on real economic activity in all Pacific Alliance countries: about 1% in Colombia, Mexico, and Peru, and about 0.5% in Chile. Thus, its contribution to business cycle fluctuations is similar to that of aggregate supply shocks and aggregate demand shocks in both stability and slowdown periods. Second, the power of loan supply shocks to affect economic activity do not remain constant over the time and its evolution across periods is heterogeneous among all Pacific Alliance countries. The sensitivity analysis indicates that the results of the model are robust to different priors specifications and to multiple sets of sign restrictions.

Suggested Citation

  • Guevara, Carlos & Rodríguez, Gabriel, 2020. "The role of credit supply shocks in pacific alliance countries: A TVP-VAR-SV approach," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940819304656
    DOI: 10.1016/j.najef.2019.101140
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    2. Adam Altăr & Matei Nicolae Kubinschi & Alina Zaharia, 2021. "Uncovering the Dynamic Relationship between Credit and Sustainable Economic Growth in Selected CEE Countries," Sustainability, MDPI, vol. 13(11), pages 1-19, June.

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    More about this item

    Keywords

    Loan supply shocks; Time-varying parameter VAR with stochastic volatility; Sign restrictions; Impulse-response function; Historical decomposition; Business cycles; Pacific alliance bloc; Chile; Peru; Mexico; Colombia; C32; E32; E51;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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