The Banking Sector, Capital Markets, and Real Economic Activity in Peru: An Empirical Causality Analysis

This study investigates the empirical causality between developments in the banking sector, the capital market, and the level of real economic activity in Peru during the period from January 1992 to December 2012. To this end, two methodologies are applied: (i) the modified Granger test proposed by Toda and Yamamoto (1995), and (ii) tests for weak and strong exogeneity. The results show that both the level of economic activity and the development of the capital market are good predictors of the evolution of the banking sector.