Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153309
Authors: 
Castrén, Olli
Dées, Stéphane
Zaher, Fadi
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 875
Abstract: 
Modelling the link between the global macro-financial factors and firms’ default probabilities constitutes an elementary part of financial sector stress-testing frameworks. Using the Global Vector Autoregressive(GVAR) model and constructing a linking satellite equation for the firm-level Expected Default Frequencies (EDFs), we show how to analyse the euro area corporate sector probability of default under a wide range of domestic and foreign macroeconomic shocks. The results show that, at the euro area aggregate level, the median EDFs react most to shocks to the GDP, exchange rate, oil prices and equity prices. There are some intuitive variations to these results when sector-level EDFs are considered. Overall, the Satellite-GVAR model appears to be a useful tool for analysing plausible global macrofinancial shock scenarios designed for financial sector stress-testing purposes.
Subjects: 
corporate default probability
Credit risk
Global VAR
macro stress testing
JEL: 
C33
F47
G32
G33
Document Type: 
Working Paper

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