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Firm Default and Aggregate Fluctuations

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Author Info
Jacobson, Tor () (Research Department, Central Bank of Sweden)
Kindell, Rikard () (Svenska Handelsbanken)
Lindé, Jesper () (Monetary Policy Department, Central Bank of Sweden)
Roszbach, Kasper () (Research Department, Central Bank of Sweden)

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Abstract

This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a logit approach on a panel data set for all incorporated Swedish businesses over 1990- 2002, we find strong evidence for a substantial and stable impact of aggregate fluctuations. Macroeffects differ across industries in an economically intuitive way. Out-of-sample evaluations show our approach is superior to both models that exclude macro information and best fitting naive forecasting models. While firm-specific factors are useful in ranking firms’ relative riskiness, macroeconomic factors capture fluctuations in the absolute risk level.

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Publisher Info
Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 226.

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Length: 48 pages
Date of creation: 01 Sep 2008
Date of revision:
Handle: RePEc:hhs:rbnkwp:0226

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
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Web page: http://www.riksbank.com/
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Related research
Keywords: Default; default-risk model; business cycles; aggregate fluctuations; microdata; logit; firm-specific variables; macroeconomic variables;

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Find related papers by JEL classification:
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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