Local credit markets in Brazil: Identification of national, regional and local components using a Dynamic Factor Model
This article aims to investigate the determining components of the dynamics of local credit markets in Brazil. To this end, we employ the methodology proposed by Forni and Reichlin (2001) for decomposing the variance of local markets into national, state, and local components. The main results show that (i) local credit markets have a larger portion of their dynamics related to common shocks of national origin, (ii) local credit markets in more developed regions, on average, have a higher share of national common components, and (iii) during recession periods, local credit markets have their dynamics less influenced by local idiosyncratic factors.