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 1980–2005 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

Download full text files

Export metadata

Additional Services

Share in Twitter Search Google Scholar
Author:Siem Jan Koopman, Roman KräusslORCiDGND, André Lucas, André Monteiro
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2006,33
Series (Serial Number):CFS working paper series (2006, 33)
Document Type:Working Paper
Year of Completion:2006
Year of first Publication:2006
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2007/02/23
Tag:Bank Lending Conditions; Business Cycles; Credit Cycles; Intensity Models; Monte Carlo Likelihood; Unobserved Component Models
GND Keyword:USA; Kredit; Konjunkturzyklus; Kreditmarkt; Kreditpolitik
Issue:December 6, 2006
Page Number:28
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht