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Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective

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  • Kay Giesecke
  • Francis A. Longstaff
  • Stephen Schaefer
  • Ilya Strebulaev

Abstract

Using an extensive new data set on corporate bond defaults in the U.S. from 1866 to 2010, we study the macroeconomic effects of bond market crises and contrast them with those resulting from banking crises. During the past 150 years, the U.S. has experienced many severe corporate default crises in which 20 to 50 percent of all corporate bonds defaulted. Although the total par amount of corporate bonds has often rivaled the amount of bank loans outstanding, we find that corporate default crises have far fewer real effects than do banking crises. These results provide empirical support for current theories that emphasize the unique role that banks and the credit and collateral channels play in amplifying macroeconomic shocks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17854.

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Date of creation: Feb 2012
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Publication status: published as Macroeconomic Effects of Corporate Bond Default Crises: A 150-Year Perspective (with K. Giesecke, I. Strebulaev, and S. Schaefer), Journal of Financial Economics, forthcoming.
Handle: RePEc:nbr:nberwo:17854

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