Abstract:
This paper presents an empirical investigation of the role of credit in the post-stabilization
consumption booms of Mexico, Chile, and Israel. Credit from the banking sector to the private sector
expanded very rapidly following the stabilizations. I show that this increase in credit reduced the
proportion of consumers that were liquidity constrained in the economy. This reduction in liquidity
constraints could have helped to fuel the observed consumption booms. In addition, I show that the
most important channels for the expansion in credit to consumers in Mexico are the rapid
remonetization of the economy, the fall in the ratio of debt held by banks to GDP held by banks, and
the increase in the foreign liabilities of banks. For Chile, the most important channel is the
remonetization of the economy, whereas in Israel, it is the crowding in effect from the fall in the ratio
of public debt held by banks to GDP. The fact that only the crowding in effect was important for
Israel, is explained by the differences between its banking system and those of the other countries.
|
