Who Bears the Burden of Monetary Tightening? Credit Default Responses Across Income Groupsand Firm Sizes in Brazil

This paper examines heterogeneous monetary transmission to credit default inBrazil, exploiting granular disaggregation by income bracket, firm size, and state.Using monthly Central Bank data from 2012 to 2024 covering all 27 Brazilianstates, we identify three central findings with direct policy implications. First, wedocument robust Granger causality from the benchmark interest rate to defaultin specific population and business segments, with average lags of 6-7 months forindividuals and 10-14 months for corporations; temporal horizons consistent withinternational literature on monetary policy transmission through credit channels.Second, we establish clear vulnerability gradients: for individuals, middle classes(2-10 minimum wages) are most vulnerable relative to lower or higher incomegroups; for corporations, micro and small firms are substantially more vulner-able than medium firms, with large firms showing no significant vulnerability.Third, we show that predictive causality plus impulse responses can still deliveractionable guidance without full structural identification; and (ii) highlightingdistributional costs of tightening, which disproportionately raise defaults amongmiddle-income households and small businesses. JEL Classification: C32 , E43 , G21