The Aggregate Consequences of Default Risk: Evidence from Firm-level Data

Speaker(s) Type Length Chair
Tim Besley Keynote Address
Charles Nolan

This presentation will discuss how a firm's probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firm-level employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor's PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year.

Join Room (this session is open to the participants of SES 2021 and the public)