Is consumer credit inflationary? An empirical evaluation for 30 countries

Working papers | 2009 | N 43

Abstract

Until the outbreak of the international crisis in 2007-2008, the current decade has been characterized by high growth in credit - especially consumer credit - and product growth in much of the developed and developing world. Towards the latter part of the period, the process has coincided with a worsening of inflationary pressures in various countries, suggesting a possible connection between consumer credit and inflation. In order to provide an answer to this question, we will carry out an econometric analysis using information for 30 countries, both developed and developing, in the period 1995-2007. Our estimates strictly reject this hypothesis by providing evidence of a null association between both variables. Our reading of this first evidence on the subject is that the absence of the expected effect may come from the low weight of credit on private sector spending.