CREDIT RISK IN THE EURO AREA

We construct credit risk indicators for euro area banks and non-financial corporations. These indicators reveal that the financial crisis of 2008 dramatically increased the cost of market funding for both banks and non-financial firms. In contrast, the prior recession following the 2000 US dot-com b...

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Bibliographic Details
Published in:The Economic journal (London) 2018-02, Vol.128 (608), p.118-158
Main Authors: Gilchrist, Simon, Mojon, Benoit
Format: Article
Language:English
Subjects:
Companies
Credit risk
Economic crisis
Economic theory
Euro
Eurozone
International finance
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Summary:We construct credit risk indicators for euro area banks and non-financial corporations. These indicators reveal that the financial crisis of 2008 dramatically increased the cost of market funding for both banks and non-financial firms. In contrast, the prior recession following the 2000 US dot-com bust led to widening credit spreads of non-financial firms but had no effect on the credit spreads of financial firms. The 2008 financial crisis also led to a systematic divergence in credit spreads for financial firms across national boundaries. Credit spreads provide substantial predictive content for real activity and lending measures for the euro area as a whole and for individual countries.
ISSN:0013-0133
1468-0297
DOI:10.1111/ecoj.12427