Unemployment and credit risk
Labor market frictions help explain the credit spread puzzle. In U.S. aggregate data and newly assembled U.S. industry-level and cross-country panel datasets, the relation between unemployment and credit risk is strong and positive. In a search model of equilibrium unemployment embedded with default...
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| Veröffentlicht in: | Journal of financial economics 2021-10, Vol.142 (1), p.127-145 |
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| container_title | Journal of financial economics |
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| creator | Bai, Hang |
| description | Labor market frictions help explain the credit spread puzzle. In U.S. aggregate data and newly assembled U.S. industry-level and cross-country panel datasets, the relation between unemployment and credit risk is strong and positive. In a search model of equilibrium unemployment embedded with defaultable debt and capital accumulation, search frictions create downward rigidity in expected search costs, hindering firms from repaying creditors particularly in bad times and rendering corporate debt riskier. Quantitatively, the model replicates the strongly positive relation between unemployment and credit risk as well as salient features of the credit spread, including its level, volatility, cyclicality, and skewness. |
| doi_str_mv | 10.1016/j.jfineco.2021.05.046 |
| format | Article |
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| ispartof | Journal of financial economics, 2021-10, Vol.142 (1), p.127-145 |
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| source | Elsevier ScienceDirect Journals |
| subjects | Accumulation Aggregate data Capital formation Corporate debt Credit risk Credit spread Creditors Debt Default Labor market Search and matching Skewness Unemployment Volatility |
| title | Unemployment and credit risk |
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