How do Structural Features Affect Corporate Exposures to Macro-financial Shocks in Open Economies?

The global financial crisis highlighted the importance of understanding how both national and global macro-financial shocks affect the performance and financial health of economies. We use a three-tiered heterogeneous panel SVAR (structural vector autoregressive) approach on data for banks and corporates across 29 countries to examine how structural features of national economies affect the exposure of these entities to various macro-financial shocks. In particular, we focus on the consequences of global, domestic real economy, inflation, and nominal level shocks. In contrast with the existing literature, we cover a range of structural characteristics relating to (i) development of domestic financial markets, (ii) features of the trade regime, (iii) features of the capital account, and (iv) integration with world financial markets. A key message from our empirical results is that the impact of these structural economic features on the transmission of shocks to the corporate sector is more complex than implied by previous research. There are important nonlinearities to take into account, and both the direction and magnitude of the impact can depend on the nature of the shock hitting the economy and on the sector of operation of the corporate entity.