Friday, April 10 2020, 11:31 am
Recovery rates, default probabilities and the credit cycle

Recovery rates, default probabilities and the credit cycle

in the range of 4.1 to 4.7 quarters (Hamilton (1989)). It appears that the cyclicality in credit variables is related to, but somewhat distinct from the macroeconomic cycle. Given our estimated models, we can show that credit risk is much higher in a dynamic model in which both default probabilities and recovery rates are allowed to