Credit risk and disaster risk

@inproceedings{Gourio2011CreditRA,
  title={Credit risk and disaster risk},
  author={François Gourio},
  year={2011}
}
  • François Gourio
  • Published 2011
Standard macroeconomic models imply that credit spreads directly re‡ect expected losses (the probability of default and the loss in the event of default). In contrast, in the data credit spreads are signi…cantly larger than expected losses, suggestive of an aggregate risk premium. Building on the idea that corporate debt, while safe in normal times, is exposed to economic depressions, this paper embeds a trade-o¤ theory of capital structure into a real business cycle model with a small, time… CONTINUE READING
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