The Cyclical Behavior of Household and Corporate Credit in Emerging Economies
25 Pages Posted: 16 Nov 2017 Last revised: 30 Dec 2020
Date Written: July 29, 2020
Standard consumption-investment theory predicts counter-cyclical (pro-cyclical) behavior of household (corporate) credit whereby households' consumption smoothing and firms' investment motives are aligned. Counter to the theoretical symbiosis consistent with U.S. data, we demonstrate not only in South Korea, but also in 19 emerging economies that the pro-cyclical behavior of household credit dominates that of corporate credit. Our analysis further reveals that dominant, pro-cyclical household credit accompanied by (collateral) assets and fueled by external debt generates counter-cyclical behavior in interest rates, amplifies credit market fluctuation, and hinders the growth of small- and medium-size businesses in the South Korean economy.
Keywords: Corporate Credit, Household Credit, Emerging Markets
JEL Classification: E20, E32, F41
Suggested Citation: Suggested Citation