Macroeconomic Default Modeling and Stress Testing

This paper applies a macroeconomic-based model for estimating probabilities of default. The first part of the paper focuses on the relation between macroeconomic variables and the default behavior of Dutch firms. A convincing relationship with GDP growth and oil price and, to a lesser extent, the interest and exchange rate exists. The second part of the paper assesses the default behavior based on a stress scenario of two consecutive quarters of zero GDP growth as required by the Basel II framework. It can be concluded that a stress-test scenario covering two quarters of zero GDP growth does not influence the default rate significantly and thus does not seem to be very severe.

Author: International Journal of Central Banking,Dietske Simons,Ferdinand Rowles
Publisher: Bibliogov
Published: 09/27/2012
Pages: 32
Binding Type: Paperback
Weight: 0.17lbs
Size: 9.69h x 7.44w x 0.07d
ISBN: 9781249557678

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