Financial and Business Cycles in Brazil
29 Pages Posted: 7 Mar 2017
Date Written: January 2017
This paper explores the nexus between the financial cycle and business cycle in Brazil. Cycles are estimated using a variety of commonly-used statistical methods and with a small, semistructural model of the Brazilian economy. An advantage of using the model-based approach is that financial and business cycles can be jointly estimated, allowing information from all key economic relationships to be used in a consistent way. The results show that Brazil is now in the downturn phase of the financial cycle. Moreover, the results underscore the importance of macro-financial linkages and highlight risks to the recovery going forward.
Keywords: Procyclicality of financial system, Brazil, Business cycles, Credit expansion, Private sector, Public sector, Financial risk, Parameter estimation, Econometric models, Financial cycle, business cycle, financial conditions index
JEL Classification: E30, E44, G10, G20
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