Credit Risk in the Euro area

Simon Gilchrist and Benoit Mojon

Working papers from Banque de France

Abstract: We construct credit risk indicators for euro area banks and non-financial corporations. These are the average spreads on the yield of euro area private sector bonds relative to the yield on German federal government securities of matched maturities. The indicators are also constructed at the country level for Germany, France, Italy and Spain. These indicators reveal that the financial crisis of 2008 has dramatically increased the cost of market funding for both banks and non-financial firms. In contrast, the prior recession following the 2000 U.S. dot-com bust led to widening credit spreads of non-financial firms but had no effect on the credit spreads of financial firms. The 2008 financial crisis also led to a systematic divergence in credit spreads for financial firms across national boundaries. This divergence in cross-country credit risk increased further as the European debt crisis has unfolded since 2010. Since that time, credit spreads for both non-financial and financial firms increasingly reflect national rather than euro area financial conditions. Consistent with this view, credit spreads provide substantial predictive content for a variety of real activity and lending measures for the euro area as a whole and for individual countries. VAR analysis implies that disruptions in corporate credit markets lead to sizeable contractions in output, increases in unemployment, and declines in inflation across the euro area.

Keywords: credit cycle; euro area; financial crisis. (search for similar items in EconPapers)
JEL-codes: E32 E43 E44 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2014
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fmk, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... g-paper_482_2014.pdf (application/pdf)

Related works:
Journal Article: Credit Risk in the Euro Area (2018)
Working Paper: Credit Risk in the Euro Area (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:482

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().