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Can structural models of default explain the credit spread puzzle?


  • Robert S. Goldstein


This Economic Letter discusses why standard versions of structural models of default tend to underpredict the level of risk premiums and variations in those premiums over time. Drawing on recent research, the Letter suggests modifications to these standard models in order to better explain historical levels and time variations of corporate bond spreads.

Suggested Citation

  • Robert S. Goldstein, 2010. "Can structural models of default explain the credit spread puzzle?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue feb22.
  • Handle: RePEc:fip:fedfel:y:2010:i:feb22:n:2010-06

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    References listed on IDEAS

    1. Bullard, James B., 2013. "Seven Faces of "The Peril"," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 613-628.
    2. repec:fip:fedgsq:y:2002:i:nov21 is not listed on IDEAS
    3. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-215, May.
    4. Ben S. Bernanke, 2002. "Deflation: making sure "it" doesn't happen here," Speech 530, Board of Governors of the Federal Reserve System (U.S.).
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    Credit ; Corporate bonds;


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