In theory the potential for credit risk diversification for banks could be substantial. Portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the...

This paper presents a new approach to modeling conditional credit loss distributions. Asset value changes of firms in a credit portfolio are linked to a dynamic global macroeconometric model, allowing macroeffects to be isolated from idiosyncratic shocks from the perspective of default (and...

This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic risk and the nature of exposure or firm heterogeneity. We derive fat-tailed correlated loss distributions arising from Gaussian risk...

The potential for portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. Using a global vector autoregressive...

This paper proposes a pair-wise approach to testing for output convergence that considers all N(N-1)/2 possible pairs of log per capita output gaps across N economies. A general probabilistic definition of output convergence is also proposed. The approach is compatible with individual output...

We provide a conceptual framework to analysis counterfactual scenarios using macroeconometric models. We consider UK entry to the euro. We derive conditional probability distributions for the difference between the future realisations of variables of interest subject to UK entry restrictions...

This paper considers alternative approaches to the analysis of large panel data models in the presence of error cross section dependence. A popular method for modelling such dependence uses a factor error structure. Such models raise new problems for estimation and inference. This paper compares...

We presents a global model linking individual country vector error-correcting models in which domestic variables are related to country-specific variables as an approximate solution to a global common factor model. The model is estimated for 26 economies. It provides a theoretical framework...

This paper proposes a modified version of Swamy’s test of slope homogeneity for panel data models where the cross section dimension (N) could be large relative to the time series dimension (T). We exploit the cross section dispersion of individual slopes weighted by their relative precision....