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Macroeconomic Dynamics and Credit Risk: A Global Perspective

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Author Info
Til Schuermann ()
Bjoern-Jakob Treutler ()
Scott M. Weiner ()
M. Hashem Pesaran ()

Additional information is available for the following registered author(s):

Abstract

We develop a framework for modeling conditional loss distributions through the introduction of risk factor dynamics. Asset value changes of a credit portfolio are linked to a dynamic global macroeconometric model, allowing macro effects to be isolated from idiosyncratic shocks. Default probabilities are driven primarily by how firms are tied to business cycles, both domestic and foreign, and how business cycles are linked across countries. The model is able to control for firm-specific heterogeneity as well as generate multi-period forecasts of the entire loss distribution, conditional on specific macroeconomic scenarios.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 995.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_995

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Related research
Keywords: risk management; economic interlinkages; loss forecasting; default correlation;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
G20 - Financial Economics - - Financial Institutions and Services - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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  10. Pesaran,H.M. & Shin,Y., 1995. "Long-Run Structural Modelling," Cambridge Working Papers in Economics 9419, Faculty of Economics, University of Cambridge.
    Other versions:
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  14. Richard Cantor & Frank Packer, 1994. "The credit rating industry," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 1-26.
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    Other versions:
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  35. Bangia, Anil & Diebold, Francis X. & Kronimus, Andre & Schagen, Christian & Schuermann, Til, 2002. "Ratings migration and the business cycle, with application to credit portfolio stress testing," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 445-474, March. [Downloadable!] (restricted)
    Other versions:
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