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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)

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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Bibliographic 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
Fax: 08-21 05 31
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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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References

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Citations

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Cited by:
  1. Leonard I. Nakamura & Kasper Roszbach., 2010. "Credit ratings and bank monitoring ability," Working Papers 10-21, Federal Reserve Bank of Philadelphia.
  2. Giordani, Paolo & Jacobson, Tor & von Schedvin , Erik & Villani, Mattias, 2011. "Taking the Twists into Account: Predicting Firm Bankruptcy Risk with Splines of Financial Ratios," Working Paper Series 256, Sveriges Riksbank (Central Bank of Sweden).
  3. Ángela González Arbeláez, 2010. "Determinantes del riesgo del crédito comercial en Colombia," VNIVERSITAS ECONÓMICA 008215, UNIVERSIDAD JAVERIANA - BOGOTÁ.
  4. Ferreira Filipe, Sara & Grammatikos, Theoharry & Michala, Dimitra, 2014. "Forecasting Distress in European SME Portfolios," MPRA Paper 53572, University Library of Munich, Germany.
  5. González-Aguado, Carlos & Suarez, Javier, 2011. "Interest Rates and Credit Risk," CEPR Discussion Papers 8398, C.E.P.R. Discussion Papers.
  6. Ongena, Steven & Popov, Alexander & Udell, Gregory F., 2013. "“When the cat's away the mice will play”: Does regulation at home affect bank risk-taking abroad?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 727-750.
  7. Orth, Walter, 2011. "Multi-period credit default prediction with time-varying covariates," MPRA Paper 30507, University Library of Munich, Germany.
  8. Konstantin Belyaev & Aelita Belyaeva & Tomas Konecny & Jakub Seidler & Martin Vojtek, 2012. "Macroeconomic Factors as Drivers of LGD Prediction: Empirical Evidence from the Czech Republic," Working Papers 2012/12, Czech National Bank, Research Department.
  9. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2011. "Introducing financial frictions and unemployment into a small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 1999-2041.
  10. Quiroz, Matias & Villani, Mattias, 2013. "Dynamic mixture-of-experts models for longitudinal and discrete-time survival data," Working Paper Series 268, Sveriges Riksbank (Central Bank of Sweden).
  11. Lana Ivicic & Sasa Cerovac, 2009. "Credit Risk Assessment of Corporate Sector in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 33(4), pages 373-399.
  12. Orth, Walter, 2013. "Multi-period credit default prediction with time-varying covariates," Journal of Empirical Finance, Elsevier, vol. 21(C), pages 214-222.

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