Default cycles
Cui, Wei, 1970-
Kaas, Leo

Data: 2017
Resum: Recessions are often accompanied by spikes of corporate default and prolonged declines of business credit. This paper argues that credit and default cycles are the outcomes of variations in self-fulfilling beliefs about credit market conditions. We develop a tractable macroeconomic model in which leverage ratios and interest spreads are determined in optimal credit contracts that reflect the expected default risk of borrowing forms. We calibrate the model to evaluate the impact of sunspots and fundamental shocks on the credit market and on output dynamics. Self-fulfilling changes in credit market expectations trigger sizable reactions in default rates and generate endogenously persistent credit and output cycles. All credit market shocks together account for about 50% of the variation of U. S. output growth during 1982-2015.
Resum: The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
Ajuts: European Commission 649396
Drets: Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original. Creative Commons
Llengua: Anglès
Col·lecció: Barcelona Graduate School of Economics. ADEMU working paper series
Col·lecció: ADEMU Working Paper Series ; 62
Document: Working paper
Matèria: Firm default ; Financing constraints ; Credit spreads ; Sunspots

Adreça alternativa: https://hdl.handle.net/10230/32389


47 p, 609.7 KB

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Documents de recerca > Working papers

 Registre creat el 2018-10-23, darrera modificació el 2022-07-09



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