Author : Iryna V. Ivaschenko
Publisher : International Monetary Fund
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.:/5 (318 download)
Book Synopsis How Much Leverage is Too Much, Or Does Corporate Risk Determine the Severity of a Recession? by : Iryna V. Ivaschenko
Download or read book How Much Leverage is Too Much, Or Does Corporate Risk Determine the Severity of a Recession? written by Iryna V. Ivaschenko and published by International Monetary Fund. This book was released on 2003 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic theory suggests that vulnerable financial conditions of the corporate sector can trigger or worsen an economy-wide recession. This paper proposes a measure of corporate vulnerability, the Corporate Vulnerability Index (CVI) and analyses whether it can explain the probability and severity of recessions. The CVI is constructed as the default probability for the entire corporate sector, using the model of corporate debt by Anderson, Sundaresan, and Tychon (1996). The CVI is shown to be a significant predictor of the probability of a recession 4 to 6 quarters ahead, even controlling for other leading indicators. An increase in the CVI is also associated with an increase in the probability of a more severe and lengthy recession 3 to 6 quarters ahead.