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Credit risk and business cycle over different regimes

  • Juri Marcucci

    ()

    (Bank of Italy, Economic Research Department)

  • Mario Quagliariello

    ()

    (Bank of Italy, Banking and Financial Supervision)

In the recent banking literature on the relationship between credit risk and the business cycle, the presence of asymmetric effects both across credit risk regimes and through the business cycle has been generally neglected. Employing threshold regression models both at the aggregate and the bank level and exploiting a unique dataset on Italian bank borrowers� default rates, this paper analyzes whether this relationship is characterized by regime switches and thus by asymmetries, determining the thresholds endogenously. Our results show that not only are the effects of the business cycle on credit risk more pronounced during downturns but also when credit risk conditions are poor.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 670.

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Date of creation: Jun 2008
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Handle: RePEc:bdi:wptemi:td_670_08
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