Credit cycles and macro fundamentals

We study the relation between the credit cycle and macro economic fundamentals in an intensity based framework. Using rating transition and default data of U.S. corporates from Standard and Poor’s over the period 1980–20
We study the relation between the credit cycle and macro economic fundamentals in an intensity based framework. Using rating transition and default data of U.S. corporates from Standard and Poor’s over the period 1980–2005 we directly estimate the credit cycle from the micro rating data. We relate this cycle to the business cycle, bank lending conditions, and financial market variables. In line with earlier studies, these variables appear to explain part of the credit cycle. As our main contribution, we test for the correct dynamic specification of these models. In all cases, the hypothesis of correct dynamic specification is strongly rejected. Moreover, accounting for dynamic mis-specification, many of the variables thought to explain the credit cycle, turn out to be insignificant. The main exceptions are GDP growth, and to some extent stock returns and stock return volatilities. Their economic significance appears low, however. This raises the puzzle of what macro-economic fundamentals explain default and rating dynamics. JEL Classification: G11, G21
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Metadaten
Author:Siem Jan Koopman, Roman Kräussl, André Lucas, André Monteiro
URN:urn:nbn:de:hebis:30-38070
Series (Serial Number):CFS working paper series (2006, 33)
Document Type:Working Paper
Language:English
Date of Publication (online):2007/02/23
Year of first Publication:2006
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2007/02/23
Tag:Bank Lending Conditions ; Business Cycles ; Credit Cycles ; Intensity Models ; Monte Carlo Likelihood; Unobserved Component Models
HeBIS PPN:190330414
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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