A Closer Look at Sectoral Financial Linkages in Brazil I: Corporations' Financial Statements

31 Pages Posted: 6 Apr 2016

See all articles by Izabela Karpowicz

Izabela Karpowicz

International Monetary Fund (IMF)

Fabian Lipinsky

International Monetary Fund (IMF)

Jongho Park

University of Maryland - Department of Economics

Date Written: March 2016

Abstract

Understanding the interplay between firms' balance sheets and the macro-economic environment is important for understanding of the Brazilian economy. A close examination of developments in the nonfinancial corporate sector up to the early 2015 reveals weak equity growth, declining profitability, and rising leverage. The empirical work suggests that adverse shocks to financial variables lead to weaker real GDP growth in Brazil through their effect on corporate leverage, borrowing costs, and default frequencies. An estimation based on a DSGE model with financial frictions indicates that the recent economic downturn in Brazil is largely driven by a decrease in total factor productivity and by negative financial shocks.

Keywords: balance sheet analysis, DSGE Bayesian estimation, emerging economies, equity, share, balance sheet, balance sheets, debt, International Lending and Debt Problems, International Business Cycles, General, Computable and Other Applied General Equilibrium Models, Financial Markets and the Macroeconomy,

JEL Classification: F34, F44, G15, G30, D58, E44

Suggested Citation

Karpowicz, Izabela and Lipinsky, Fabian and Park, Jongho, A Closer Look at Sectoral Financial Linkages in Brazil I: Corporations' Financial Statements (March 2016). IMF Working Paper No. 16/45, Available at SSRN: https://ssrn.com/abstract=2759755

Izabela Karpowicz (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Fabian Lipinsky

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jongho Park

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

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