Macroeconomic efault Modeling and Stress Testing
This paper applies a macroeconomic-based model for estimating probabilities of default. The first part of the paper focuses on the relation between macroeconomic variables and the default behavior of Dutch firms. A convincing relationship with GDP growth and oil price and, to a lesser extent, the interest and exchange rate exists. The second part of the paper assesses the default behavior based on a stress scenario of two consecutive quarters of zero GDP growth as required by the Basel II framework. It can be concluded that a stress-test scenario covering two quarters of zero GDP growth does not influence the default rate significantly and thus does not seem to be very severe.
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- Siem Jan Koopman & André Lucas, 2003.
"Business and Default Cycles for Credit Risk,"
Tinbergen Institute Discussion Papers
03-062/2, Tinbergen Institute, revised 09 Jan 2003.
- Glenn Hoggarth & Andrew Logan & Lea Zicchino, 2005. "Macro stress tests of UK banks," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 392-408 Bank for International Settlements.
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- Jorge A. Chan-Lau, 2006. "Fundamentals-Based Estimation of Default Probabilities - A Survey," IMF Working Papers 06/149, International Monetary Fund.
- Carling, Kenneth & Jacobson, Tor & Lindé, Jesper & Roszbach, Kasper, 2002. "Capital Charges under Basel II: Corporate Credit Risk Modelling and the Macro Economy," Working Paper Series 142, Sveriges Riksbank (Central Bank of Sweden).
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