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

In: Monetary Policy and Financial Stability in Latin America and the Caribbean

Author

Listed:
  • Francisco A. Ramírez de León

    (Banco Central de la República Dominicana)

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.

Suggested Citation

  • Francisco A. Ramírez de León, 2018. "The Relation Between Credit and Business Cycles in Central America and the Dominican Republic," Investigación Conjunta-Joint Research, in: Alberto Ortiz-Bolaños (ed.), Monetary Policy and Financial Stability in Latin America and the Caribbean, edition 1, volume 1, chapter 4, pages 107-131, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    • Handle: RePEc:cml:incocp:5en-4
    Note: Joint Research Program XIX Meeting of the Central Bank Researchers Network
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    References listed on IDEAS

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    2. Helbling, Thomas & Huidrom, Raju & Kose, M. Ayhan & Otrok, Christopher, 2011. "Do credit shocks matter? A global perspective," European Economic Review, Elsevier, vol. 55(3), pages 340-353, April.
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    4. José Eduardo Gómez G. & Jair Ojeda Joya & Fernando Tenjo Galarza & Héctor Manuel Zárate Solano, 2013. "The Interdependence between Credit and Real Business Cycles in Latin American Economies," Borradores de Economia 768, Banco de la Republica de Colombia.
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    More about this item

    Keywords

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    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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