ANALYSIS OF THE IMPACT OF MONETARY POLICY ON MUNICIPAL CREDIT PER CAPITA IN THE SOUTHEAST REGION OF BRAZIL

Abstract

The paper presents the aim to identify the determinants of per capita municipal
credit operations in southeastern Brazil. The analysis method was used dynamic
Arellano and Bond panel. The main result was that monetary shocks have different effects
on municipalities. In regions with abundant credit, the policy is less effective and
has greater impact than in regions with less available credit. This indicates that due to
the lack of regional banks, given a rise in interest rates, banks do not only withdraw the  existing offer, but also move part of the resources out of the regions with less available credit to regions with abundant credit, which exacerbates the effect in the region and alleviates the peripheral effect on the developed region. On the other hand, expansionary monetary policy will be more effective in municipalities with less credit, because these regions tend to have a higher unmet demand for credit and greater investment opportunity. Thus, given the current scenario of the Brazilian banking market, it is concluded that the use of monetary policy can increase or decrease the heterogeneous conditions on access to credit, and restrictive monetary policies not only reduce economic activity and credit, but may increase disparity between regions, and expansionist policies can encourage economic activity and lead to the convergence of credit conditions among municipalities.