Economic dynamics during periods of financial stress: Evidences from Brazil

Stona, Filipe; Morais, Igor Alexandre Clemente de; Triches, Divanildo

doi:10.1016/j.iref.2018.02.006

Cited by 16 publications

(9 citation statements)

References 31 publications

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“…For the Brazilian economy, non‐linear empirical studies have been applied to several issues, including inflation targeting under different fiscal regimes (Favero & Giavazzi, 2004), business cycles (Arango & Melo, 2006), and the pass‐through effect of exchange rate into inflation (Correa & Minella, 2010; Macera & Divino, 2015). However, to the best of our knowledge, Stona et al (2018) is the only other work addressing the non‐linear macroeconomic consequences of financial stress. The authors use an MS‐VAR model that confirms the non‐linear, regime‐dependent behavior of four significant macroeconomic variables: inflation, federal interest rate, consumption, and M2.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Finally, past financial stress episodes are easily identified in the data, as shown in Figure 2. In this case, there is evidence in the literature (Deschamps, 2008) that LVSTAR models are more efficient than the alternative Markov‐switching models such as the one used in Stona et al (2018). The reason is that LVSTAR uses more information from the data to estimate the transition equation, whereas, in MSVAR, the transition is stochastically driven and does not indicate which specific variable is switching.…”

Section: Model and Datamentioning

confidence: 99%

“…Financial stress indexes for Brazil. This figure compares two alternative stress index: the FSI (Balakrishnan et al, 2011), used in this paper, and the BFSI (Stona et al, 2018). Except for 2008, the BFSI shows a more contained oscillation than FIS, notably before 2004…”

Section: Model and Datamentioning

confidence: 99%

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Credit, output and financial stress: A non‐linear LVSTAR application to Brazil

Neves

Semmler

2022

Metroeconomica

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We estimate a bi‐variate LVSTAR model to investigate the non‐linear interplay between Brazil’s credit, output and financial cycles between 1999 and 2017. We use financial stress as the regime‐switching variable to assess how it impacts economic performance. We find evidence of a lengthy transition between regimes. Moreover, Granger Causality tests indicate statistical precedence of credit growth through financial intermediaries. After credit shocks, we find non‐mean‐reverting trajectories and that financial stress worsens the economic downturn. Counterintuitively, total credit growth increases after adverse output shocks. This appears to be caused by elevated public credit provision relative to private credit flows, triggered by anticyclical policy.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Model and Datamentioning

confidence: 99%

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Credit, output and financial stress: A non‐linear LVSTAR application to Brazil

Neves

Semmler

2022

Metroeconomica

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“…A theoretical reference among them is Hwang (2012), who through a small-open economy model calibrated for Korea, investigates the role of financial frictions in an emerging economy. Empirical studies include Auel and Ferreira (2011) and Stona, Morais and Triches (2018), who analyzed the way that domestic credit market conditions propagate and amplify shocks, affecting economic dynamics in Brazil. In turn, Kara, Hacihasanoglu and Unalmis (2019) argued that the feedback loop between banking and non-financial sectors during financial stress episodes is stronger for emerging markets with high net foreign currency indebtedness like Turkey.…”

Section: Literature Reviewmentioning

confidence: 99%

Financial Frictions in Mexico: Evidence from the Credit Spread and its Components

Aguirre¹,

Gómez²

2021

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Este artículo investiga la relación entre las fricciones en los mercados financieros y la actividad económica en México, para lo cual se construye y descompone un diferencial de tasas para los bonos emitidos por empresas privadas no financieras en el mercado interno, basado en Gilchrist y Zakrajsek (2012). Se muestra que el diferencial contiene información significativa sobre la evolución de la actividad económica y de los agregados crediticios. Además, se encuentra que la prima excedente de los bonos (PEB), cuya dinámica describe la relación entre la probabilidad de impago de las empresas y su diferencial de tasas, es el componente con mayor poder predictivo. Se muestra que choques negativos en las condiciones financieras, identificados como innovaciones en PEB, generan una desaceleración en la actividad económica y en el financiamiento. Finalmente, se encuentra evidencia de efectos no lineales en la respuesta de la actividad económica ante este choque.

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“…The authors noticed the early signs of vulnerability through growth of credit to GDP, spread of interest rate, fiscal deficit, current account, exchange rate and differentials in interest rate. On the other hand, Stona et al (2018) stressed the importance of appropriate policies during adverse conditions through their study on the case of Brazil.…”

Section: Literature Reviewmentioning

confidence: 99%

Macroeconomic Perspective on Constructing Financial Vulnerability Indicator in China

Kuek

Puah

Arip

et al. 2020

Journal of Business Economics and Management

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This paper attempts to develop a financial vulnerability indicator for China as a barometer for the state of financial vulnerability in the Chinese financial market, possibly for real-time application. Twelve variables from different sectors are utilised to extract a common vulnerability component using a dynamic approximate factor model. Through the implementation of a Markovswitching Bayesian vector autoregression (MSBVAR) model, the empirical results indicate that a high-vulnerability episode is associated with substantially lower economic activity, but a low-vulnerability episode does not incur substantial changes in economic activity. Notably, the constructed indicator can serve as a real-time early warning system to signify vulnerabilities in the Chinese financial market.

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Economic dynamics during periods of financial stress: Evidences from Brazil

Cited by 16 publications

References 31 publications

Credit, output and financial stress: A non‐linear LVSTAR application to Brazil

Credit, output and financial stress: A non‐linear LVSTAR application to Brazil

Financial Frictions in Mexico: Evidence from the Credit Spread and its Components

Macroeconomic Perspective on Constructing Financial Vulnerability Indicator in China

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