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The cyclical behavior of household and corporate credit in emerging economies

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  • Sim, Seung-Gyu
  • Lee, Saiah

Abstract

Standard consumption-investment theory predicts counter-cyclical (pro-cyclical) behavior of household (corporate) credit whereby households' consumption smoothing and firms' investment motives are aligned. Counter to the theoretical symbiosis consistent with U.S. data, we demonstrate not only in South Korea, but also in 19 emerging economies that the pro-cyclical behavior of household credit dominates that of corporate credit. Our analysis further reveals that dominant, pro-cyclical household credit accompanied by (collateral) assets and fueled by external debt generates counter-cyclical behavior in interest rates, amplifies credit market fluctuation, and hinders the growth of small- and medium-size businesses in the South Korean economy.

Suggested Citation

  • Sim, Seung-Gyu & Lee, Saiah, 2020. "The cyclical behavior of household and corporate credit in emerging economies," Emerging Markets Review, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:ememar:v:45:y:2020:i:c:s1566014118302231
    DOI: 10.1016/j.ememar.2020.100724
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    References listed on IDEAS

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    Cited by:

    1. Madeira, Carlos, 2023. "The evolution of consumption inequality and risk-insurance in Chile," Emerging Markets Review, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Corporate credit; Household credit; Emerging economies;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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