Credit shocks: evidence from corporate spreads and defaults
Research published by the Dallas Federal Reserve examines the links between credit shocks and the macroeconomy.
The paper notes that recent research has found that exogenous shocks to spreads paid in corporate credit markets are a substantial source of macroeconomic fluctuations. However, an alternative explanation of the data is that spreads respond endogenously to expectations of future default.
The research uses a simple model of bond spreads to find that credit market shocks cause a
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