NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Credit Risk and Disaster Risk

Francois Gourio

NBER Working Paper No. 17026
Issued in May 2011
NBER Program(s):   AP   CF   EFG   ME

Corporate credit spreads are large, volatile, countercyclical, and significantly larger than expected losses, but existing macroeconomic models with financial frictions fail to reproduce these patterns, because they imply small and constant aggregate risk premia. Building on the idea that corporate debt, while safe in normal times, is exposed to the risk of economic depression, this paper embeds a trade-off theory of capital structure into a real business cycle model with a small, time-varying risk of large economic disaster. This simple feature generates large, volatile and countercyclical credit spreads as well as novel business cycle implications. In particular, financial frictions substantially amplify the effect of shocks to the disaster probability.

download in pdf format
   (423 K)

email paper

This paper is available as PDF (423 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17026

Published: François Gourio, 2013. "Credit Risk and Disaster Risk," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 1-34, July. citation courtesy of

Users who downloaded this paper also downloaded these:
Acharya, Davydenko, and Strebulaev w16995 Cash Holdings and Credit Risk
Gourio w15399 Disasters Risk and Business Cycles
Gilchrist and Zakrajsek w17021 Credit Spreads and Business Cycle Fluctuations
Ang and Longstaff w16982 Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe
Pesaran, Schuermann, and Treutler w11493 Global Business Cycles and Credit Risk
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us