Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2021-06-28
Number: 21-059/III
Author-Name: Anna Dubinova
Author-Workplace-Name: Vrije Universiteit Amsterdam
Author-Name: Andre Lucas
Author-Workplace-Name: Vrije Universiteit Amsterdam
Author-Name: Sean Telg
Author-Workplace-Name: Vrije Universiteit Amsterdam
Title: COVID-19, Credit Risk and Macro Fundamentals
Abstract: We investigate the relationship between macro fundamentals and credit risk, rating migrations and defaults during the start of the COVID-19 pandemic. We find that credit risk models that use macro fundamentals as covariates overestimate credit risk incidence due to the unprecedented drops in economic activity in the first lockdowns. We argue that this break in the macro-credit linkage is less affected if we take an unobserved components modeling framework, both at shorter and longer credit risk horizons.
Classification-JEL: G21, C22
Keywords: COVID-19, credit risk, macro fundamentals, frailty factors, dynamic latent factors
File-URL: https://papers.tinbergen.nl/21059.pdf
File-Format: application/pdf
File-Size: 831045 bytes
Handle: RePEc:tin:wpaper:20210059