Anticipating the Credit Cycle: the Predictive Role of Lending Standards in Brazil

Abstract

Identifying credit supply shocks separately from demand shocks remains a central challenge in the empirical credit-channel literature, particularly in emerging economies. We use the Brazilian Central Bank's Quarterly Credit Conditions Survey (PTC), launched in 2011, which records the lending standards reported by financial institutions and provides a direct measure of credit-supply conditions independent of price. We embed this variable in a hierarchical Bayesian VAR estimated on quarterly data for 2011Q1–2025Q4. A tightening in lending standards is followed by a sustained contraction in non-earmarked credit, and standards account for about a quarter of credit’s forecast-error variance at the twelve-quarter horizon. Impulse responses, variance decomposition, and Granger tests point in the same direction. Surveys like the PTC provide an early indicator of credit supply conditions, with implications for the conduct of monetary policy in emerging economies.