Description

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.

More publications in this series: Working Papers

More publications by: Izabela Karpowicz ; Fabian Lipinsky ; Jongho Park