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Countercyclical liquidity policy and credit cycles: Evidence from macroprudential and monetary policy in Brazil

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  • João Barata R. Blanco Barroso
  • Rodrigo Barbone Gonzalez
  • José-Luis Peydró

  • Bernardus F. Nazar Van Doornik

Abstract

We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply.

Suggested Citation

  • João Barata R. Blanco Barroso & Rodrigo Barbone Gonzalez & José-Luis Peydró & Bernardus F. Nazar Van Doornik, 2020. "Countercyclical liquidity policy and credit cycles: Evidence from macroprudential and monetary policy in Brazil," Economics Working Papers 1698, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1698
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    Cited by:

    1. Fabiani, Andrea & López-Piñeros, Martha & Peydró, José-Luis & Soto, Paul E., 2022. "Capital Controls, Domestic Macroprudential Policy and the Bank Lending Channel of Monetary Policy," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 139(November ), pages 1-1.
    2. Hans Degryse & Cédric Huylebroek & Bernardus F Nazar Van Doornik, 2025. "The disciplining effect of bank supervision: evidence from SupTech," BIS Working Papers 1256, Bank for International Settlements.
    3. Caiazzo, Emmanuel & Zazzaro, Alberto, 2025. "Bank diversity and financial contagion," Journal of Financial Stability, Elsevier, vol. 77(C).
    4. Solikin M. Juhro & Denny Lie, 2024. "Financial System Procyclicality and Optimal Capital Requirement Policy: Revisiting Countercyclical Responses," Working Papers 2024-22, University of Sydney, School of Economics, revised Jan 2025.
    5. Martínez, J-F. & Peiris, M.U. & Tsomocos, D.P., 2020. "Macroprudential policy analysis in an estimated DSGE model with a heterogeneous banking system: An application to Chile," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    6. Solikin M. Juhro & Denny Lie & Atet Rizki Wijoseno & Mohammad Aly Fikry, 2022. "Fiscal Policy Stance, Central Bank Digital Currency, And The Optimal Monetary-Macroprudential Policy Mix," Working Papers WP/01/2022, Bank Indonesia.

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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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