Bank behavior and cycle of credit in Brazil in 2003-2016: A liquidity preference’s post-Keynesian approach

Abstract

This paper analyzes the behavior of the banking sector in the recent cycle of credit in Brazil (2003-2016), boom and bust, taking as a starting point, the post-Keynesian liquidity preference approach developed by Keynes and Cardim de Carvalho and Minsky’s financial fragility hypothesis. It argues that the behavior of banks and the credit cycle broadly followed the pattern established by this theory. Ho-wever, the application of this approach to the reality of banks in Brazil requires taking into account institutional and macroeconomic specificities that played a major role in the analyzed period, such as financial innovations, high spreads, the presence of an overnight circuit, and the importance of state-owned banks.