Private sector credit and inflation during Brazilian stabilization plans: Models with endogenously determined structural breaks

Abstract

The purpose of this paper is to investigate the relationship between credit, inflation, and stabilization plans in Brazil during 1970-1998. The structural changes suffered by credit are endogenously determined using Bai and Perron's methodology (1998). The breaks correspond to the major stabilization plans adopted by the country. A negative relationship between credit and inflation is found. Stability contributes to credit expansion without, however, guaranteeing its quality.