We study the relation between the credit cycle and macro-economic fundamentals in an intensity-based framework. Using rating transition and default data of U.S. corporates from Standard and Poor’s over the period 1980—2005 we directly estimate the credit cycle from the micro rating data. We...

This paper proposes a new model-based method to obtain a coincident indicator for the business cycle. A dynamic factor model with trend components and a common cycle component is considered which can be estimated using standard maximum likelihood methods. The multivariate unobserved components...

To gain insights in the current status of the economy, macroeconomic time series are often decomposed into trend, cycle and irregular components. This can be done by nonparametric band-pass filtering methods in the frequency domain or by model-based decompositions based on autoregressive moving...

This paper discusses identification, specification, estimation and forecasting for a general class of periodic unobserved components time series models with stochastic trend, seasonal and cycle components. Convenient state space formulations are introduced for exact maximum likelihood...

Although the main interest in the modelling of electricity prices is often on volatility aspects, we argue that stochastic heteroskedastic behaviour in prices can only be modelled correctly when the conditional mean of the time series is properly modelled. In this paper we consider different...

Convergence in gross domestic product series of five European countries is empirically identified using multivariate time series models that are based on unobserved components with dynamic converging properties. We define convergence in terms of a decrease in dispersion over time and model this...

In this paper we investigate whether the dynamic properties of the U.S. business cycle have changed in the last fifty years. For this purpose we develop a flexible business cycle indicator that is constructed from a moderate set of macroeconomic time series. The coincident economic indicator is...

State space models with nonstationary processes and fixed regression effects require a state vector with diffuse initial conditions. Different likelihood functions can be adopted for the estimation of parameters in time series models with diffuse initial conditions. In this paper we consider...

A new empirical reduced-form model for credit rating transitions is introduced. It is a parametric intensity-based duration model with multiple states and driven by exogenous covariates and latent dynamic factors. The model has a generalized semi-Markov structure designed to accommodate many of...

Various economic theories are available to explain the existence of credit and default cycles. There remains empirical ambiguity, however, as to whether or these cycles coincide. Recent papers suggest by their empirical research set-up that they do, or at least that defaults and credit spreads...