Corporate Sector Stress Testing with Endogenous Balance Sheet Dynamics

Marco Gross and Rui Xu

No 2026/209, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a stress test framework for nonfinancial corporate (NFC) balance sheets. The model simulates firm income statements and balance sheets conditional on macro-financial scenarios, to obtain conventional risk metrics such as probabilities of default (PDs) and loss given default (LGD), alongside other structural metrics such as interest coverage ratios, leverage, and others. The model entails explicit stock–flow accounting and a link of borrowing costs to firm-specific credit risk metrics, i.e., an endogenous cost of funding feedback. An illustration is provided with an application to Brazil, involving 8,000 private firms and three hundred listed nonfinancial firms. The results point to heightened vulnerabilities under stagflation shock scenarios, which jointly weaken earnings and raise funding costs, increasing default risk and debt at risk.

Keywords: Corporate sector credit risk; stress tests; dynamic balance sheets; probability of default; loss given default. (search for similar items in EconPapers)
Pages: 27
Date: 2026-10-02
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.imf.org/en/publications/longres?sk=580090 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2026/209

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().