A Study of the Recent Evolution of Savings and Credit in Brazil Using a Structural Model

Abstract

The last decade was unique to the Brazilian banking market due to several institutional improvements that were reflected in a strong expansion of credit. Understand what were the channels of this expansion and how they impacted the market has been a recurring issue in the economic literature about Brazil. In this paper we investigate to what extent a model of precautionary savings, with income growth and heterogeneous agents are able to replicate aggregated municipal data. For this we look at the total municipal credit/savings and income and estimate model parameters from an estimator of moments. As a result, we find that in addition to uncertainty about income, the key variables to understand the expansion of credit in Brazil were, in order of importance, increasing access to credit and the loosening of credit restrictions. Furthermore, in accordance to an extensive literature on the relationship between consumption and savings, we find that the precautionary motive also stands as the main reason to save in Brazil, to the extent that uncertainty about income is the parameter that influences prominently stock of savings. We also found that a model with different interest rates for savings and loan adjusts better to the Brazilian reality than a model with a single rate.