Credit and unemployment in Brazil (2002-2015)

Abstract

This article investigates how credit expansions impact the dynamics of unemployment. We estimated multivariate time series models (TVAR) to investigate the effects of decreasing credit constraints on monthly unemployment rates in Brazil between January 2002 and December 2015, concluding that the credit expansions has reduced structural unemployment rates, and that they had a significant effect on the persistence of unemployment during the credit scarcity period. At the same time it is observed that the relation between credit and unemployment is significantly different in two regimes: credit shocks impact strongly and persistently when firms are faced with a credit constraint environment, but they are weaker and insignificant in the “normal” credit regime.