Macroeconomic effects of corporate default crisis: A long-term perspective

Schaefer, S M and Giesecke, K and Longstaff, F A and Strebulaev, I (2014) Macroeconomic effects of corporate default crisis: A long-term perspective. Journal of Financial Economics, 111 (2). pp. 297-310. ISSN 1058-3300

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Using an extensive data set on corporate bond defaults in the US from 1866 to 2010, we study the macroeconomic effects of bond market crises and contrast them with those resulting from banking crises. During the past 150 years, the US has experienced many severe corporate default crises in which 20-50% of all corporate bonds defaulted. Although the total par amount of corporate bonds has at times rivaled the amount of bank loans outstanding, we find that corporate default crises have far fewer real effects than do banking crises. These results provide empirical support for current theories that emphasize the unique role that banks and the credit and collateral channels play in amplifying macroeconomic shocks.

Item Type: Article
Additional Information: © 2014 Elsevier B.V.
Subject Areas: Finance
DOI: 10.1016/j.jfineco.2013.10.014
Date Deposited: 02 Mar 2016 18:51
Last Modified: 17 May 2016 11:30

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