Default cycles
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- dc.contributor.author Cui, Wei, 1970-ca
- dc.contributor.author Kaas, Leoca
- dc.date.accessioned 2017-06-21T10:13:15Z
- dc.date.available 2017-06-21T10:13:15Z
- dc.date.issued 2017-05
- dc.description.abstract Recessions are often accompanied by spikes of corporate default and prolonged declines of business credit. This paper argues that credit and default cycles are the outcomes of variations in self-fulfilling beliefs about credit market conditions. We develop a tractable macroeconomic model in which leverage ratios and interest spreads are determined in optimal credit contracts that reflect the expected default risk of borrowing forms. We calibrate the model to evaluate the impact of sunspots and fundamental shocks on the credit market and on output dynamics. Self-fulfilling changes in credit market expectations trigger sizable reactions in default rates and generate endogenously persistent credit and output cycles. All credit market shocks together account for about 50% of the variation of U.S. output growth during 1982-2015.ca
- dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
- dc.format.mimetype application/pdfca
- dc.identifier.uri http://hdl.handle.net/10230/32389
- dc.language.iso engca
- dc.relation.ispartofseries ADEMU Working Paper Series;62
- dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
- dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.ca
- dc.rights.accessRights info:eu-repo/semantics/openAccessca
- dc.rights.uri https://creativecommons.org/licenses/by/4.0/ca
- dc.subject.keyword Firm default
- dc.subject.keyword Financing constraints
- dc.subject.keyword Credit spreads
- dc.subject.keyword Sunspots
- dc.title Default cyclesca
- dc.type info:eu-repo/semantics/workingPaperca