Credit risk and business cycle over different regimes

Juri Marcucci and Mario Quagliariello

No 670, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: 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.

Keywords: Credit Risk; Panel Threshold Regression Models; Regime Switching; Default Rate; Business Cycle; Cyclicality; Basel 2 (search for similar items in EconPapers)
JEL-codes: C22 C23 G21 G28 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-ban, nep-bec, nep-reg and nep-rmg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_670_08

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