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Credit Cyclicality in Chile; A Cross-Country Analysis

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  • Ludvig Söderling

Abstract

This paper analyzes the determinants of credit cyclicality. It constructs a financial development index and studies whether it affects the amplitude of impulse responses to shocks to output, terms of trade, global liquidity, and global risk appetite. The paper uses both country-specific VARs for cross-country analyses and panel VARs to compare impulse responses between various country groupings. The study finds evidence that financial development-especially stronger creditor rights-can mitigate credit cyclicality, given that the response of credit to output or terms of trade shocks is stronger in countries with weaker financial systems.

Suggested Citation

  • Ludvig Söderling, 2008. "Credit Cyclicality in Chile; A Cross-Country Analysis," IMF Working Papers 08/55, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/55
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    References listed on IDEAS

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    1. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    2. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
    3. Micco, Alejandro & Panizza, Ugo, 2006. "Bank ownership and lending behavior," Economics Letters, Elsevier, vol. 93(2), pages 248-254, November.
    4. Arturo Galindo & Alejandro Micco, 2001. "Creditor Protection and Financial Cycles," IDB Publications (Working Papers) 1341, Inter-American Development Bank.
    5. Matías Braun & Borja Larrain, 2005. "Finance and the Business Cycle: International, Inter-Industry Evidence," Journal of Finance, American Finance Association, vol. 60(3), pages 1097-1128, June.
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    More about this item

    Keywords

    Liquidity; Chile; Private sector; Terms of trade; Credit growth; business cycle; panel VAR; terms of trade shocks; trade shocks; financial stability; competitive pressure;

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