Local credit markets in Brazil: identifying national, state and localcomponents using a dynamic factor model
DOI:
https://doi.org/10.1590/1980-53575635abgKeywords:
Credit markets, Financial integration, Regional economies, Dynamic factor modelAbstract
This article investigates the determinants of local credit market dynamics in Brazil by decomposing credit fluctuations into national, state, and local components. We adopt the dynamic factor methodology proposed by Forni and Reichlin (2001), applied to a dataset covering 510 immediate regions between 2000 and 2024. The results show that: (i) a substantial share of credit variance is explained by common national and state shocks, although the local component remains predominant; (ii) the relative importance of the national, state, and local components is associated with the level of economic development, regional productive structure, and the participation of public banks in local credit markets; and (iii) during recessions, regional heterogeneity increases and the relative importance of the state and local components becomes greater. In particular, regions with a higher participation of public banks tend to exhibit lower influence of local factors and greater relevance of national and state-level factors in credit dynamics. These findings suggest that the Brazilian credit system is simultaneously integrated and heterogeneous, reflecting both common macroeconomic conditions and region-specific economic and institutional characteristics.
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Atualizado em 14/08/2025