Leverage, financial and business cycles in Bolivia
DOI:
https://doi.org/10.4067/S0718-88702024000100115Keywords:
Real bussines cycles (RBC), financial frictions, loan to value (LTV), bayesian estimationAbstract
This paper provides pioneering estimates of the impact of loan-to-value (LTV) ratios, also known as leverage, on Bolivia’s GDP. The empirical evidence reveals the pro-cyclicality between the economic and financial cycles, which affects the intertemporal resource allocation processes between the financial and real sectors. The findings from the RBC model demonstrate that shocks in the loan-to-value (LTV) ratios trigger a rise in housing prices and greater consumption by entrepreneurs, leading to an increase in investment, employment, and output. Additionally, the study confirms that LTV ratios can be a double-edged instrument, as excessive use can potentially destabilize the economy.
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