Household borrowing constraints and monetary policy in emerging economies

Resumo

Credit markets in emerging economies can be distinguished from those in advanced economies in many respects, including the collateral required for households to borrow. This work proposes a DSGE framework to analyze one peculiarity that characterizes the credit markets of some emerging markets: payroll-deducted personal loans. We add the possibility for households to contract long-term debt and compare two different types of credit constraints with one another, one based on housing and the other based on future income. We estimate the model for Brazil using a Bayesian technique. The model is able to solve a puzzle of the Brazilian economy: responses to monetary shocks at first appear to be strong but dissipate quickly. This occurs because income – and the amount available for loans – responds more rapidly to monetary shocks than housing prices. To smooth consumption, agents (borrowers) compensate for lower income and for borrowing by working more hours to repay loans and erase debt in a shorter time. Therefore, in addition to the income and substitution effects, workers consider the effects on their credit constraints when deciding how much labor to supply, which becomes an additional channel through which financial frictions affect the economy.

Ficha do documento

Tipo

Estudo

Ano

2015

Instituição

Escola de Economia de São Paulo

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Não informado

Identificador

oai:repositorio.fgv.br:10438/13463

Temas

Economia

Palavras-chave

Credit constrainsEmerging marketsMonetary policyEconomiaCréditosPolítica monetáriaEmpréstimo pessoal