Department of Economics and Business - Universitat Pompeu Fabra

Title:: Countercyclical liquidity policy and credit cycles: Evidence from macroprudential and monetary policy in Brazil
Authors:: João Barata R. Blanco Barroso, Rodrigo Barbone Gonzalez, José-Luis Peydró and Bernardus F. Nazar Van Doornik
Date:: February 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:: Liquidity; reserve requirements; credit cycles; macroprudential and monetary policy.
JEL codes:: E51; E52; E58; G01; G21; G28.
Area of Research:: Macroeconomics and International Economics

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