The Demand for Bank Loans in Venezuela: A Multivariate Cointegration Analysis

Abstract

In order to disentangle the stagnant behavior of the credit market in Venezuela this study focuses on the evolution and specific role played by the demand for loans. Using monthly time series we estimate a credit demand function for the period 1986:1 to 2000:12. The estimation is based on a minimum theoretical specification which sees credit demand as driven by firm’s financial decisions. Cointegration tests indicate that there is one stationary long-run relationship between the real stock of loans, an index of real sales, the interest rate on loans, the real exchange rate and the economy mark-up. The short-run dynamics of the demand for real loans is subsequently modeled by means of a Vector Error Correction Model. The general-to-specific methodology has served to restrict the error correction vector, thereby obtaining two final dynamic models to explain the short-term movements of real credit. The results are consistent with the view that the interest is exogenous and the quantity of bank borrowing is largely demand determined.