Looking for asymmetries between credit and output in the BRICS countries

Abstract

This article aims to investigate the role of household domestic credit on GDP in the BRICS countries, controlling for other variables, such as inflation, government spending, GFCF, and interest rate. The econometric methodology involves the estimation of Nonlinear Autoregressive Distributed Lag (NARDL) models with Bounds Testing Approach to Cointegration, for quarterly data ranging from 2008Q3 to 2019Q4. The estimations indicate that household domestic credit and GDP, together with the control variables, have a common long-run path (cointegrate) in each country analyzed. But the long-run coefficients show that only in Brazil, Russia and China increases in household credit lead to a growth in output. As for short-run perturbations, it takes approximately two quarters, on average, for such shock to dissipate and the long-run equilibrium level to be restored. The asymmetric adjustment paths show a positive asymmetric case in Brazil and South Africa, but a negative asymmetry in Russia and India. For the Chinese case, the adjustment is symmetric. The evidence from Toda and Yamamoto’s Granger Causality tests between GDP and household domestic credit reveals China is the only case of bicausality. South Africa shows no sign of Granger-causality, while Brazil shows that household credit Granger-causes GDP, but not the opposite. In the case of Russia, GDP Granger-causes household domestic credit.