Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective
Stanford University - Management Science & Engineering
Francis A. Longstaff
University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)
Stephen M. Schaefer
London Business School - Institute of Finance and Accounting
Ilya A. Strebulaev
Stanford University - Graduate School of Business; National Bureau of Economic Research
February 8, 2012
Using an extensive new data set on corporate bond defaults in the U.S. 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 U.S. has experienced many severe corporate default crises in which 20 to 50 percent of all corporate bonds defaulted. Although the total par amount of corporate bonds has often 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.
Number of Pages in PDF File: 30
Keywords: financial markets, macroeconomy, corporate defaults, bank lending, collateral, business cycles
JEL Classification: E32, E44, G33,working papers series
Date posted: February 9, 2012
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