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The Time Dimension of the Links Between Loss Given Default and the Macroeconomy

Author

Listed:
  • Tomas Konecny

    (European Systemic Risk Board
    Czech National Bank)

  • Jakub Seidler

    (ING Bank NV, Prague, Czech Republic,
    Czech National Bank (at the time this paper was written))

  • Aelta Belyaeva

    (CERGE-EI, Charles University)

  • Konstantin Belyaev

    (CERGE-EI, Charles University)

Abstract

Most studies focusing on the determinants of loss given default (LGD) have largely ignored possible lagged effects of the macroeconomy on LGD. We fill this gap by employing a wide set of macroeconomic covariates on a retail portfolio that represents 15% of the Czech consumer credit market over the period 2002–2012. We find an important time dimension to the links between LGD and the aggregate economy in the Czech Republic. The model that allows exclusively for contemporaneous effects includes a number of significant macroeconomic variables, some of which have non-intuitive signs. Nonetheless, a more general time structure of the LGD model makes current macroeconomic variables largely irrelevant and highlights the importance of delayed responses of LGD to the macroeconomic environment.

Suggested Citation

  • Tomas Konecny & Jakub Seidler & Aelta Belyaeva & Konstantin Belyaev, 2017. "The Time Dimension of the Links Between Loss Given Default and the Macroeconomy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(6), pages 462-491, October.
  • Handle: RePEc:fau:fauart:v:67:y:2017:i:6:p:462-491
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    References listed on IDEAS

    as
    1. Radovan Chalupka & Juraj Kopecsni, 2009. "Modeling Bank Loan LGD of Corporate and SME Segments: A Case Study," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(4), pages 360-382, Oktober.
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    More about this item

    Keywords

    credit losses; loss given default; recovery rates; workout LGD;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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