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Tuesday, December 05, 2006

Cool graph of the day

I would have rather seen the inverse of this graph, but the point is still conveyed:

The graph depicts an inverse relationship between the amount of domestic credit outstanding (as a percentage of GDP) and poverty rates. A single line does not convey causation - is reduced poverty a necessary condition for credit to become available?

However this Economics Letter of the Dallas Fed, from which the graph was pulled, suggests that the availability of credit is at least simultaneously determined with a reduction in poverty and might well predate it.

This is still not evidence of causation, likely there are institutional factors that "cause" both the increase in credit availability and the reduction in poverty. The Letter concerns the beginnings of a stable mortgage market in Mexico.

There is a distinct upward trend in mortgage originations in Mexico since the Peso bailout. That bodes well for the future of Mexico and, ultimately, the rest of us as well.

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