The effects of macroeconomic variables on default risk and
transition matrices
Stefan Trück and Andreas Lorenz
University of Karlsruhe, Institute of Statistics and Econometrics
In our paper we try to capture the link between the current state of the economy and default
risk of companies. We provide empirical evidence for the effect of macroeconomic factors
and the business cycle on transition matrices and default rates for different rating categories.
We further investigate whether and how the influence of the macroeconomic situation is
incorporated in existing credit risk models (like CreditMetrics or Credit Portfolio View) and
provide model extensions using conditional default intensities and transition matrices. We
find that especially for more speculative grade loans our model provides better results than
using average historical transition and default probabilities.