Credit and Exchange Rate-Based Stabilization
May 1, 1996
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Summary
This paper examines the behavior of private sector credit in chronic inflation countries that undergo exchange rate-based inflation stabilizations. It concludes that these programs are characterized by a strong increase in private sector credit, both in absolute terms and as a fraction of real economic activity. Empirical results using data for Mexico, Chile, Argentina, and Israel support a negative statistically significant relationship between credit and inflation for Mexico, Argentina, and Chile, but not for Israel. In addition, for both Chile and Mexico, dummy variables representing periods of inflation stabilization are positive and statistically different from zero indicating a stronger expansion in private sector credit during stabilization. These results could potentially explain the consumption boom that is usually present in the early stages of these programs.
Subject: Consumption, Credit, Financial crises, Financial regulation and supervision, Financial sector reform, Financial services, Inflation, Money, National accounts, Prices, Real interest rates
Keywords: business cycle, Consumption, Credit, credit behavior, credit contraction, credit demand, credit demand and supply, credit market, credit sector condition, credit series, credit supply, Eastern Europe, excess demand, Financial sector reform, Inflation, inflation stabilization, interest rate, private sector credit, Real interest rates, sector condition, WP
Pages:
54
Volume:
1996
DOI:
Issue:
051
Series:
Working Paper No. 1996/051
Stock No:
WPIEA0511996
ISBN:
9781451847062
ISSN:
1018-5941
