Who bears the burden of monetary tightening? credit default responses across income groups and firm sizes in Brazil

Abstract

This paper examines heterogeneous monetary transmission to credit default in Brazil, exploiting granular disaggregation by income bracket, firm size, and state. Using monthly Central Bank data from 2012 to 2024 covering all 27 Brazilian states, we document heterogeneous predictive responses across households and firms. In the baseline Selic-path estimates, household responses are strongest in the middle of the income distribution, particularly across the 1–5 minimum-wage brackets, while responses at higher incomes are smaller; this household ordering is not recovered with comparable precision in the exercise based on unexpected Selic target changes. On the corporate side, small firms display the clearest baseline responses, emerging after roughly 10–14 months, while micro firms also react but with less precise aggregate baseline evidence. The surprise-based exercise provides clearer support on the firm side, and additional sectoral and product-level results point to institutional credit segmentation, with free and short-term corporate credit responding more strongly than more protected categories. Overall, the evidence is strongest for firm-side heterogeneity, while the household pattern is best interpreted as a suggestive reduced-form result of the baseline analysis.