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

Author/Editor:

Izabela Karpowicz ; Fabian Lipinsky ; Jongho Park

Publication Date:

March 2, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2016/045

Subject:

Business cycles Consumption Economic growth Financial statements National accounts Production Productivity Public financial management (PFM) Return on investment

English

Publication Date:

March 2, 2016

ISBN/ISSN:

9781513536880/1018-5941

Stock No:

WPIEA2016045

Pages:

30

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