American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Credit Risk and Disaster Risk
American Economic Journal: Macroeconomics
vol. 5,
no. 3, July 2013
(pp. 1–34)
(Complimentary)
Abstract
Credit spreads are large, volatile, and countercyclical, and recent empirical work suggests that risk premia, not expected credit losses, are responsible for these features. Building on the idea that corporate debt, while fairly safe in ordinary recessions, is exposed to economic depressions, this paper embeds a trade-off theory of capital structure into a real business cycle model with a small, exogenously timevarying risk of economic disaster. The model replicates the level, volatility and cyclicality of credit spreads, and variation in the corporate bond risk premium amplifies macroeconomic fluctuations in investment, employment, and GDP.Citation
Gourio, François. 2013. "Credit Risk and Disaster Risk." American Economic Journal: Macroeconomics, 5 (3): 1–34. DOI: 10.1257/mac.5.3.1Additional Materials
JEL Classification
- E13 General Aggregative Models: Neoclassical
- E22 Capital; Investment; Capacity
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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