Arbeitspapier
Business and Default Cycles for Credit Risk
Various economic theories are available to explain the existence of credit and default cycles. There remains empirical ambiguity, however, as to whether or these cycles coincide. Recent papers_new suggest by their empirical research set-up that they do, or at least that defaults and credit spreads tend to co-move with macro-economic variables. If true, this is important for credit risk management as well as for regulation and systemic risk management. In this paper, we use 1927-1997 U.S. data on real GDP, credit spreads, and business failure rates to shed new light on the empirical evidence. We use a multivariate unobserved components framework to disentangle credit from business cycles. It turns out that cyclical co-movements arise between default rates, but not real GDP. There is, however, a contemporaneous correlation between real GDP and default rates. Regarding the longer term evolution of the series, credit spreads influence default rates and real GDP, but not vice versa. This corroborates some of the empirical findings in the recent literature on the correlation between macrovariables and default rates. It also suggests the use of credit spreads besides or instead of economic growth rates to forecast the dynamics of future default rates.
- Sprache
-
Englisch
- Erschienen in
-
Series: Tinbergen Institute Discussion Paper ; No. 03-062/2
- Klassifikation
-
Wirtschaft
Econometric and Statistical Methods: Other
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- Thema
-
credit cycles
business cycles
defaults
credit risk
procyclicality
multivariate unobserved component models.
Kreditrisiko
Konjunktur
Risikomanagement
Multivariate Analyse
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Koopman, Siem Jan
Lucas, André
- Ereignis
-
Veröffentlichung
- (wer)
-
Tinbergen Institute
- (wo)
-
Amsterdam and Rotterdam
- (wann)
-
2003
- Handle
- Letzte Aktualisierung
-
20.09.2024, 08:22 MESZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Koopman, Siem Jan
- Lucas, André
- Tinbergen Institute
Entstanden
- 2003
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