Household Credit as Stimulus? Evidence from Brazil
From 2011 to 2014, the Brazilian government conducted a heavily advertised major credit expansion program through government banks as part of its effort to stimulate the economy. Using administrative data on individual-level borrowing and spending, we find that the program led to a substantial rise in borrowing by government employees, especially those with low financial literacy. We trace the impact of credit stimulus on borrowers' consumption through the 2011-16 business cycle, and find that the credit stimulus resulted in higher consumption volatility and lower average consumption over the cycle. Our results suggest a potential downside of using household credit as stimulus in emerging markets.
This work should not be reported as representing the views of the Central Bank of Brazil. The views expressed in the paper are those of the authors and not necessarily reflect those of the Central Bank of Brazil. We received valuable comments from discussants Robin Koepke, Meghana Ayyagari, João F. Cocco, and from Murillo Campello, Zhiguo He, Yueran Ma, John Mondragon, Pietro Veronesi and audiences at Chicago Booth, Olin Business School at WashU, Northwestern Kellogg, the IMF Macro-Financial Research Conference and the BIS CCA Research conference. We are thankful to the staff of the Central Bank of Brazil for their comments and support, and in particular to: Carlos Viana de Carvalho, André Minella, Bernardus Ferdinandus Van Doornik, Sérgio Lago Alves, Sérgio Mikio Koyama, Toni R.E. dos Santos, Tony Takeda, Clodoaldo Annibal, Theo Cotrim Martins, Priscilla Koo Wilkens, Marcel Pinto, David Pereira, Guilherme Yanaka and Jaime Gregório. Noah Forougi provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.