Macroeconomic Dynamics and Credit Risk: A Global Perspective

Mohammad Pesaran, Til Schuermann, Björn-Jakob Treutler and Scott M. Weiner

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We develop a framework for modelling conditional loss distributions through the introduction of risk factor dynamics. Asset value changes of a credit portfolio are linked to a dynamic global macroeconometric model, allowing macro effects to be isolated from idiosyncratic shocks. Default probabilities are driven primarily by how firms are tied to business cycles, both domestic and foreign, and how business cycles are linked across countries. The model is able to control for firm-specific heterogeneity as well as generate multi-period forecasts of the entire loss distribution, conditional on specific macroeconomic scenarios.

Keywords: risk management; economic interlinkages; loss forecasting; default correlation (search for similar items in EconPapers)
JEL-codes: C32 E17 G20 (search for similar items in EconPapers)
Pages: 67
Date: 2003-06
New Economics Papers: this item is included in nep-fin
Note: EM, Ma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Related works:
Journal Article: Macroeconomic Dynamics and Credit Risk: A Global Perspective (2006)
Working Paper: Macroeconomic Dynamics and Credit Risk: A Global Perspective (2003)
Working Paper: Macroeconomic Dynamics and Credit Risk: A Global Perspective
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0330

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