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Discussion Paper Details

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Title: Firm Default and Aggregate Fluctuations

Author(s): Tor Jacobson, Rikard Kindell, Jesper Lindé and Kasper F. Roszbach

Publication Date: December 2008

Keyword(s): Business cycles, Default, Default-risk model, Logit model, Macroeconomic variables and Micro-data

Programme Area(s): International Macroeconomics

Abstract: This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a multiperiod logit approach on a panel data set for all incorporated Swedish businesses over 1990-2002, we find strong evidence for a substantial and stable impact of aggregate fluctuations. Macroeffects differ across industries in an economically intuitive way. Out-of-sample evaluations show our approach is superior to both models that exclude macro information and best fitting naive forecasting models. While firm-specific factors are useful in ranking firms' relative riskiness, macroeconomic factors capture fluctuations in the absolute risk level.

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Bibliographic Reference

Jacobson, T, Kindell, R, Lindé, J and Roszbach, K. 2008. 'Firm Default and Aggregate Fluctuations'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7083