Financial fragility and business cycles volatility in Brazil after the Real Plan
DOI:
https://doi.org/10.1590/0101-41615015dgcKeywords:
Business Cycles, Financial instability, FragilityAbstract
Financial frictions undermine the efficiency with which the financial system channels resources
to fund consumption expenditures and fixed capital investment. Fluctuations in the external
finance premium or changes in the risk behavior of economic agents may lead to increased
business cycles volatility. This paper investigates whether greater financial fragility increases the
short-run fluctuations in economic activity in Brazil. Using monthly data between 1996 and 2018, this article applied a dynamic factor model to derive a financial system fragility indicator
and estimated vector autoregressive models to evaluate this indicator’s performance throughout
the business cycles. The results indicate that greater financial fragility compromise the
country’s macroeconomic performance and reveal the importance of exchange-rate volatility
and price level volatility to the short-run fluctuations in economic activity in Brazil.
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References
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Alesina, A., Campante, F.R., e Tabellini, G. “Why is fiscal policy often procyclical?” Journal of the European Economic Association 6: 1006-36, 2008.
Aruoba, S. B.; Diebold, F.X.; Scotti, C. “Real-time measurement of business conditions.” Journal of Business & Economic Statistics 27, no. 4: 417-427, 2009.
Azariadis, C. “Credit Cycles and Business Cycles.” Federal Reserve Bank of St. Louis Review 100, no.1: 45-71, 2018.
Baker, S.R.; Bloom, N.; Davis, S.J. “Measuring economic policy uncertainty.” The quarterly journal of economics 131, no.4: 1593-1636, 2016.
BANCO CENTRAL DO BRASIL (BCB). “Séries Temporais (SGS)”. Brasília, 2019. Disponível em: https://www.bcb.gov.br>. Acesso em 28 fev. 2019.
Backus, D., Kehoe, P., e Kydland, F. “International real business cycles.” Journal of Political Economy 100: 745–775, 1992.
Baxter, M.; King, R.G. “Measuring business cycles: approximate band-pass filters for economic time series.” Review of economics and statistics 81, no.4: 575-593, 1999.
Beck, T., Demirguç-Kunt, A., E Levine, R. “Finance, Inequality and the Poor.” Journal of Economic Growth 12, no.1: 27–49, 2007.
Beck, T., Chen, T., Lin, C., E Song, F. M. “Financial innovation: The bright and the dark sides.” Journal of Banking & Finance 72: 28-51, 2016.
Bernanke, B.S., Gertler, M., e Gilchrist, S. “The financial accelerator and the flight to quality.” Review of Economics and Statistics 78: 1- 15, 1996.
Bernanke, B.S., Gertler, M., e Gilchrist, S. “The financial accelerator in a quantitative business cycle framework.” In: Taylor, J., Woodford, M. Handbook of Macroeconomics 1B: 1342-1393, 1999.
Bernanke, B.S., e Lown, C. “The credit crunch.” Brookings Papers on Economic Activity 2: 205-247, 1991.
Borio, C., e Zhu, H. “Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?” Journal of Financial Stability 8, no. 4: 236-51, 2012.
Caballero, R. J., e Krishnamurthy, A. “International and Domestic Collateral Constraints in a Model of Emerging Market Crises.” Journal of Monetary Economics 48: 513-548, 2001.
Chang, Y.S., e Pak, D. “Warren Buffett value indicator vs. GDP size-is the relationship superlinear?” International Journal of Economics and Business Research 15, no.2: 223-235, 2018.
Charles, A., Darné, O., e Tripier, F. “Uncertainty and the Macroeconomy: Evidence from an uncertainty composite indicator.” Applied Economics 50, no.10: 1093-107, 2018.
Christiano, L.J., e Fitzgerald, T.J. “The band pass filter.” International Economic Review 44, no.2: 435-465, 2003.
Christiano, L.J.; Eichenbaum, M.; Evans, C.L. “Nominal rigidities and the dynamic effects of a shock to monetary policy.” Journal of Political Economy 113, no.1: 1-45, 2005.
Čihák, M., Demirgüč-Kunt, A., Feyen, E. e Levine, R. “Financial development in 205 economies, 1960 to 2010.” NBER Working Paper 18943, 2013.
COMITÊ DE DATAÇÃO DOS CICLOS ECONÔMICOS (CODACE). 2017. Comunicado de Datação de Ciclos Mensais Brasileiros – Out/2017. Rio de Janeiro: IBRE.
Dabla-Norris, E., e Srivisal, N. “Revisiting the Link between Finance and Macroeconomic Volatility.” United Kingdom, 2013. IMF Working Paper 29.
Denizer, C.A., Iyigun, M.F., e Owen, A. “Finance and Macroeconomic Volatility.” The B.E. Journal of Macroeconomics 2, no.1: 1-32, 2002.
Easterly, W., Islam, R. e Stiglitz, J.E. “Shaken and stirred: explaining growth volatility”. In: Annual World Bank conference on development economics. World Bank, 191-211, 2001.
Fazzari, S., Ferri, P., e Greenberg, E. “Cash flow, investment, and Keynes–Minsky cycles.” Journal of Economic Behavior & Organization 65, no.3-4: 555-572, 2008.
Gennaioli, N., Shleifer, A., e Vishny, R. “Neglected risks, financial innovation, and financial fragility.” Journal of Financial Economics 104, no.3: 452-468, 2012.
Gertler, M. “Financial structure and aggregate economic activity: an overview.” Journal of Money, Credit and Banking 20:559–588, 1988.
Geweke, J. “The dynamic factor analysis of economic time series models”. In: Latent Variables in Socioeconomic Models, ed. D. J. Aigner and A. S. Goldberger. (Amsterdam: North-Holland, 1977): 365–383.
Gilchrist, S., SIM, J. W., e Zakrajsek, E. “Uncertainty, Financial Frictions, and Investment Dynamics.” NBER Working Paper, 20038, 2014.
Gilchrist, S., e Zakrajsek, E. “Credit Spreads and Business Cycle Fluctuations.” American Economic Review 102: 1692–1720, 2012.
Hamilton, J.D. “Why you should never use the Hodrick-Prescott filter.” Review of Economics and Statistics 100, no.5: 831-843, 2018.
INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATÍSTICA (IBGE). 2017. PEA. Disponível em: < http://seriesestatisticas.ibge.gov.br/>. Acesso em: 15 ago. 2017.
Jurado, K., Ludvigson, S.C., e NG, S. “Measuring uncertainty.” American Economic Review 105, no.3: 1177-1216, 2015.
Karras, G., e Song, F. “Sources of business-cycle volatility: an exploratory study on a sample of OECD countries.” Journal of Macroeconomics 18: 621–637, 1996.
King, R., e Levine, R. “Finance and growth: Schumpeter might be right.” Quarterly Journal of Economics 108: 717–737, 1993.
Kliesen, K.L., Owyang, M.T. e Vermann, E.K. “Disentangling diverse measures: A survey of financial stress indexes.” Federal Reserve Bank of St. Louis Review 94, no.5: 369-397, 2012.
Kydland, F.E.; Prescott, E.C. “Time to build and aggregate fluctuations.” Econometrica: Journal of the Econometric Society, 1345-1370, 1982.
Levine, R. “Finance and Growth: Theory and Evidence”. In: Aghion, P., Durlauf, S. Handbook of Economic Growth 1: 865–934, 2005, 1. ed.
Loayza, N., e Raddatz, C. “The Structural Determinants of External Vulnerability.” The World Bank Economic Review 21: 359-387, 2007.
Long, Jr., J.B., e Plosser, C.I. “Real business cycles.” Journal of Political Economy 91, no.1: 39-69, 1983.
Lütkepohl, H. “New introduction to multiple time series analysis.” Berlim: Springer Science & Business Media, 2005.
Marques-Ibanez, D., Altunbas, Y., e Van Leuvensteijn, M. “Competition and bank risk: the effect of securitization and bank capital.” ECB Working Paper, n. 1678, 2014.
Minsky, H. P. “Stabilizing an Unstable Economy.” Yale University Press, 1986.
Mishkin, F.S. “International Capital Movements, Financial Volatility and Financial Instability.” NBER Working Paper. n. 6390, 1998.
Mishkin, F.S. “Financial Stability and the Macroeconomy.” Iceland: Department of Economics. Central Bank of Iceland Working Paper 9, 2000.
Pesaran, H.H, e Shin, Y. “Generalized impulse response analysis in linear multivariate models.” Economics Letters 58: 17-29, 1998.
Poncela, P., e Ruiz, E. “Small-versus big-data factor extraction in dynamic factor models: An empirical assessment”. In: Dynamic Factor Models. Emerald Group Publishing Limited, 401-434, 2016.
Popov, A. “Financial Liberalization, Growth, and Risk.” European Central Bank, manuscrito, 2011.
Pysarenko, S., Alexeev, V., e Tapon, F. “Predictive blends: Fundamental Indexing meets Markowitz.” Journal of Banking & Finance 100: 28-42, 2019.
Quah, D., e Sargent, T.J. “A dynamic index model for large cross sections. In: Business cycles, indicators and forecasting.” University of Chicago Press, 1993: 285-310.
Ramey, G., e Ramey, V. “Cross-country evidence on the link between volatility and growth.” NBER Working Paper 4959, 1994.
Rebelo, S.T. “Real Business Cycle Models: Past, Present and Future.” Scandinavian Journal of Economics 107, no.2: 217-238, 2005.
Ryoo, S. “Long waves and short cycles in a model of endogenous financial fragility.” Journal of Economic Behavior & Organization 74, no.3: 163-186, 2010.
Schüler, Y.S. “On the cyclical properties of Hamilton's regression filter.” Deutsche Bundesbank Discussion Paper 3, 2018.
Silva, G. F. “The impact of financial system development on business cycles volatility: cross-country evidence.” Journal of Macroeconomics 24: 233-253, 2002.
Smets, F., e Wouters, R. “Shocks and frictions in US business cycles: A Bayesian DSGE approach.” American Economic Review 97, no. 3: 586-606, 2007.
Stiglitz, J.E. “The Causes and Consequences of the Dependence of Quality on Price.” Journal of Economic Literature 25, no.1, 1987.
Stock, J.H., e Watson, M. “Dynamic factor models.” Oxford Handbook on Economic Forecasting, 2011.
TESOURO NACIONAL. 2019. SIAFI. Disponível em: < http://www.tesouro.fazenda.gov.br/-/series-historicas>. Acesso em 15 fev. 2019.
Teixeira, D. N.; Tiryaki, G.F. “Fragilidade financeira e ciclos econômicos no Brasil.” Revista Desenbahia 14, no. 23: 165-200, 2017.
Tiryaki, G.; Gavazza, I.; Mota, A.; Malbouisson, C. “Ciclos de Crédito, Inadimplência e as Flutuações Econômicas no Brasil.” Revista de Economia Contemporânea 21, no.1: 1-33, 2017.
WORLD BANK. 2017. Global Financial Development Database. Washington: World Bank. Disponível em: http://databank.worldbank.org/data/reports.aspx?source=global-financial-development#. Acesso em 07 nov. 2017.
Alesina, A., Campante, F.R., e Tabellini, G. “Why is fiscal policy often procyclical?” Journal of the European Economic Association 6: 1006-36, 2008.
Aruoba, S. B.; Diebold, F.X.; Scotti, C. “Real-time measurement of business conditions.” Journal of Business & Economic Statistics 27, no. 4: 417-427, 2009.
Azariadis, C. “Credit Cycles and Business Cycles.” Federal Reserve Bank of St. Louis Review 100, no.1: 45-71, 2018.
Baker, S.R.; Bloom, N.; Davis, S.J. “Measuring economic policy uncertainty.” The quarterly journal of economics 131, no.4: 1593-1636, 2016.
BANCO CENTRAL DO BRASIL (BCB). “Séries Temporais (SGS)”. Brasília, 2019. Disponível em: https://www.bcb.gov.br>. Acesso em 28 fev. 2019.
Backus, D., Kehoe, P., e Kydland, F. “International real business cycles.” Journal of Political Economy 100: 745–775, 1992.
Baxter, M.; King, R.G. “Measuring business cycles: approximate band-pass filters for economic time series.” Review of economics and statistics 81, no.4: 575-593, 1999.
Beck, T., Demirguç-Kunt, A., E Levine, R. “Finance, Inequality and the Poor.” Journal of Economic Growth 12, no.1: 27–49, 2007.
Beck, T., Chen, T., Lin, C., E Song, F. M. “Financial innovation: The bright and the dark sides.” Journal of Banking & Finance 72: 28-51, 2016.
Bernanke, B.S., Gertler, M., e Gilchrist, S. “The financial accelerator and the flight to quality.” Review of Economics and Statistics 78: 1- 15, 1996.
Bernanke, B.S., Gertler, M., e Gilchrist, S. “The financial accelerator in a quantitative business cycle framework.” In: Taylor, J., Woodford, M. Handbook of Macroeconomics 1B: 1342-1393, 1999.
Bernanke, B.S., e Lown, C. “The credit crunch.” Brookings Papers on Economic Activity 2: 205-247, 1991.
Borio, C., e Zhu, H. “Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?” Journal of Financial Stability 8, no. 4: 236-51, 2012.
Caballero, R. J., e Krishnamurthy, A. “International and Domestic Collateral Constraints in a Model of Emerging Market Crises.” Journal of Monetary Economics 48: 513-548, 2001.
Chang, Y.S., e Pak, D. “Warren Buffett value indicator vs. GDP size-is the relationship superlinear?” International Journal of Economics and Business Research 15, no.2: 223-235, 2018.
Charles, A., Darné, O., e Tripier, F. “Uncertainty and the Macroeconomy: Evidence from an uncertainty composite indicator.” Applied Economics 50, no.10: 1093-107, 2018.
Christiano, L.J., e Fitzgerald, T.J. “The band pass filter.” International Economic Review 44, no.2: 435-465, 2003.
Christiano, L.J.; Eichenbaum, M.; Evans, C.L. “Nominal rigidities and the dynamic effects of a shock to monetary policy.” Journal of Political Economy 113, no.1: 1-45, 2005.
Čihák, M., Demirgüč-Kunt, A., Feyen, E. e Levine, R. “Financial development in 205 economies, 1960 to 2010.” NBER Working Paper 18943, 2013.
COMITÊ DE DATAÇÃO DOS CICLOS ECONÔMICOS (CODACE). 2017. Comunicado de Datação de Ciclos Mensais Brasileiros – Out/2017. Rio de Janeiro: IBRE.
Dabla-Norris, E., e Srivisal, N. “Revisiting the Link between Finance and Macroeconomic Volatility.” United Kingdom, 2013. IMF Working Paper 29.
Denizer, C.A., Iyigun, M.F., e Owen, A. “Finance and Macroeconomic Volatility.” The B.E. Journal of Macroeconomics 2, no.1: 1-32, 2002.
Easterly, W., Islam, R. e Stiglitz, J.E. “Shaken and stirred: explaining growth volatility”. In: Annual World Bank conference on development economics. World Bank, 191-211, 2001.
Fazzari, S., Ferri, P., e Greenberg, E. “Cash flow, investment, and Keynes–Minsky cycles.” Journal of Economic Behavior & Organization 65, no.3-4: 555-572, 2008.
Gennaioli, N., Shleifer, A., e Vishny, R. “Neglected risks, financial innovation, and financial fragility.” Journal of Financial Economics 104, no.3: 452-468, 2012.
Gertler, M. “Financial structure and aggregate economic activity: an overview.” Journal of Money, Credit and Banking 20:559–588, 1988.
Geweke, J. “The dynamic factor analysis of economic time series models”. In: Latent Variables in Socioeconomic Models, ed. D. J. Aigner and A. S. Goldberger. (Amsterdam: North-Holland, 1977): 365–383.
Gilchrist, S., SIM, J. W., e Zakrajsek, E. “Uncertainty, Financial Frictions, and Investment Dynamics.” NBER Working Paper, 20038, 2014.
Gilchrist, S., e Zakrajsek, E. “Credit Spreads and Business Cycle Fluctuations.” American Economic Review 102: 1692–1720, 2012.
Hamilton, J.D. “Why you should never use the Hodrick-Prescott filter.” Review of Economics and Statistics 100, no.5: 831-843, 2018.
INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATÍSTICA (IBGE). 2017. PEA. Disponível em: < http://seriesestatisticas.ibge.gov.br/>. Acesso em: 15 ago. 2017.
Jurado, K., Ludvigson, S.C., e NG, S. “Measuring uncertainty.” American Economic Review 105, no.3: 1177-1216, 2015.
Karras, G., e Song, F. “Sources of business-cycle volatility: an exploratory study on a sample of OECD countries.” Journal of Macroeconomics 18: 621–637, 1996.
King, R., e Levine, R. “Finance and growth: Schumpeter might be right.” Quarterly Journal of Economics 108: 717–737, 1993.
Kliesen, K.L., Owyang, M.T. e Vermann, E.K. “Disentangling diverse measures: A survey of financial stress indexes.” Federal Reserve Bank of St. Louis Review 94, no.5: 369-397, 2012.
Kydland, F.E.; Prescott, E.C. “Time to build and aggregate fluctuations.” Econometrica: Journal of the Econometric Society, 1345-1370, 1982.
Levine, R. “Finance and Growth: Theory and Evidence”. In: Aghion, P., Durlauf, S. Handbook of Economic Growth 1: 865–934, 2005, 1. ed.
Loayza, N., e Raddatz, C. “The Structural Determinants of External Vulnerability.” The World Bank Economic Review 21: 359-387, 2007.
Long, Jr., J.B., e Plosser, C.I. “Real business cycles.” Journal of Political Economy 91, no.1: 39-69, 1983.
Lütkepohl, H. “New introduction to multiple time series analysis.” Berlim: Springer Science & Business Media, 2005.
Marques-Ibanez, D., Altunbas, Y., e Van Leuvensteijn, M. “Competition and bank risk: the effect of securitization and bank capital.” ECB Working Paper, n. 1678, 2014.
Minsky, H. P. “Stabilizing an Unstable Economy.” Yale University Press, 1986.
Mishkin, F.S. “International Capital Movements, Financial Volatility and Financial Instability.” NBER Working Paper. n. 6390, 1998.
Mishkin, F.S. “Financial Stability and the Macroeconomy.” Iceland: Department of Economics. Central Bank of Iceland Working Paper 9, 2000.
Pesaran, H.H, e Shin, Y. “Generalized impulse response analysis in linear multivariate models.” Economics Letters 58: 17-29, 1998.
Poncela, P., e Ruiz, E. “Small-versus big-data factor extraction in dynamic factor models: An empirical assessment”. In: Dynamic Factor Models. Emerald Group Publishing Limited, 401-434, 2016.
Popov, A. “Financial Liberalization, Growth, and Risk.” European Central Bank, manuscrito, 2011.
Pysarenko, S., Alexeev, V., e Tapon, F. “Predictive blends: Fundamental Indexing meets Markowitz.” Journal of Banking & Finance 100: 28-42, 2019.
Quah, D., e Sargent, T.J. “A dynamic index model for large cross sections. In: Business cycles, indicators and forecasting.” University of Chicago Press, 1993: 285-310.
Ramey, G., e Ramey, V. “Cross-country evidence on the link between volatility and growth.” NBER Working Paper 4959, 1994.
Rebelo, S.T. “Real Business Cycle Models: Past, Present and Future.” Scandinavian Journal of Economics 107, no.2: 217-238, 2005.
Ryoo, S. “Long waves and short cycles in a model of endogenous financial fragility.” Journal of Economic Behavior & Organization 74, no.3: 163-186, 2010.
Schüler, Y.S. “On the cyclical properties of Hamilton's regression filter.” Deutsche Bundesbank Discussion Paper 3, 2018.
Silva, G. F. “The impact of financial system development on business cycles volatility: cross-country evidence.” Journal of Macroeconomics 24: 233-253, 2002.
Smets, F., e Wouters, R. “Shocks and frictions in US business cycles: A Bayesian DSGE approach.” American Economic Review 97, no. 3: 586-606, 2007.
Stiglitz, J.E. “The Causes and Consequences of the Dependence of Quality on Price.” Journal of Economic Literature 25, no.1, 1987.
Stock, J.H., e Watson, M. “Dynamic factor models.” Oxford Handbook on Economic Forecasting, 2011.
TESOURO NACIONAL. 2019. SIAFI. Disponível em: < http://www.tesouro.fazenda.gov.br/-/series-historicas>. Acesso em 15 fev. 2019.
Teixeira, D. N.; Tiryaki, G.F. “Fragilidade financeira e ciclos econômicos no Brasil.” Revista Desenbahia 14, no. 23: 165-200, 2017.
Tiryaki, G.; Gavazza, I.; Mota, A.; Malbouisson, C. “Ciclos de Crédito, Inadimplência e as Flutuações Econômicas no Brasil.” Revista de Economia Contemporânea 21, no.1: 1-33, 2017.
WORLD BANK. 2017. Global Financial Development Database. Washington: World Bank. Disponível em: http://databank.worldbank.org/data/reports.aspx?source=global-financial-development#. Acesso em 07 nov. 2017.
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Copyright (c) 2020 Diego Nunes Teixeira, Gisele Ferreira Tiryaki, Carlos Eduardo Iwai Drumond
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How to Cite
Teixeira, D. N., Tiryaki, G. F., & Drumond, C. E. I. (2020). Financial fragility and business cycles volatility in Brazil after the Real Plan. Estudos Econômicos (São Paulo), 50(1), 125-158. https://doi.org/10.1590/0101-41615015dgc
