Working Paper: NBER ID: w17854
Authors: Kay Giesecke; Francis A. Longstaff; Stephen Schaefer; Ilya Strebulaev
Abstract: 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.
Keywords: corporate default; banking crises; macroeconomic effects; credit channel; collateral channel
JEL Codes: E3; E32; E44; G01; G21; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corporate default crises (G33) | GDP growth (O49) |
| corporate default crises (G33) | industrial production (L69) |
| banking crises (G01) | GDP growth (O49) |
| banking crises (G01) | industrial production (L69) |
| corporate default crises (G33) | bank lending (G21) |
| negative shocks in housing and stock market values (G59) | bank lending (G21) |
| negative shocks in housing and stock market values (G59) | corporate bond issuance (G32) |