Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/93645 
Year of Publication: 
2012
Series/Report no.: 
Staff Report No. 577
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
Reduced-form models of default that attribute a large fraction of credit spreads to compensation for credit event risk typically preclude the most plausible economic justification for such risk to be priced - namely, a contagious response of the market portfolio during the credit event. When this channel is introduced within a general equilibrium framework for an economy comprised of a large number of firms, credit event risk premia have an upper bound of just a few basis points and are dwarfed by the contagion premium. We provide empirical evidence supporting the view that credit event risk premia are minuscule.
JEL: 
G12
G10
Document Type: 
Working Paper

Files in This Item:
File
Size
407.57 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.