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An Empirical Analysis of the Credit-Output Relationship: Evidence from Peru

Author

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  • Lahura, Erick

    (Central Bank of Peru)

Abstract

This paper investigates the empirical relationship between credit and output in Peru. The analysis is based on the estimation of vector error correction models and the identification of structural shocks. The models considered include real output, real credit growth (in domestic currency, foreign currency and both), and terms of trade. Using quarterly data for the period 1994-2011, the results suggest that real credit growth contain useful information to understand the evolution of the non-deterministic component of real output. In particular, the results show that: (i) there exist a stable long-run relationship between real credit growth, output and terms of trade, (ii) real credit growth is useful in forecasting output in the long-run, and (iii) a structural permanent shock in real credit has positive permanent effects on output. Therefore, credit aggregates could be useful as indicator variables for policymakers.

Suggested Citation

  • Lahura, Erick, 2011. "An Empirical Analysis of the Credit-Output Relationship: Evidence from Peru," Working Papers 2011-018, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2011-018
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    File URL: https://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2011/Documento-de-Trabajo-18-2011.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit growth; output growth; vector error correction models; structural shocks.;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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