Macroeconomic effects of corporate default crisis: A long-term perspective

Using an extensive data set on corporate bond defaults in the US 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 US has experienced many severe corporate default crises in which 20–...

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Bibliographic Details
Published in:Journal of financial economics 2014-02, Vol.111 (2), p.297-310
Main Authors: Giesecke, Kay, Longstaff, Francis A., Schaefer, Stephen, Strebulaev, Ilya A.
Format: Article
Language:English
Subjects:
Bank loans
Banking crises
Banking industry
Bond markets
Corporate bonds
Corporate default rates
Default
Economic crisis
Economic theory
Financial crises
Financial economics
Financial services
Investment analysis
Macroeconomics
Personal finance
Studies
U.S.A
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Summary:Using an extensive data set on corporate bond defaults in the US 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 US has experienced many severe corporate default crises in which 20–50% of all corporate bonds defaulted. Although the total par amount of corporate bonds has at times 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.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2013.10.014