Countercyclical Liquidity Policy and Credit Cycles: Evidence from Macroprudential and Monetary Policy in Brazil

44 Pages Posted: 22 Sep 2020

See all articles by Rodrigo Gonzalez

Rodrigo Gonzalez

Banco Central do Brasil; Bank of International Settlements

Joao Barroso

Banco Central do Brasil

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Bernardus Ferdinandus Nazar Van Doornik

Government of the Federative Republic of Brazil - Central Bank of Brazil

Date Written: September 2020

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.

Keywords: Credit cycles, liquidity, macroprudential and monetary policy, reserve requirements

JEL Classification: E51, E52, E58, G21, G28

Suggested Citation

Gonzalez, Rodrigo and Barroso, Joao and Peydro, Jose-Luis and Doornik, Bernardus Ferdinandus Nazar Van, Countercyclical Liquidity Policy and Credit Cycles: Evidence from Macroprudential and Monetary Policy in Brazil (September 2020). Available at SSRN: https://ssrn.com/abstract=3696355

Rodrigo Gonzalez (Contact Author)

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Bank of International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Joao Barroso

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Bernardus Ferdinandus Nazar Van Doornik

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

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