ECB paper models endogenous credit risk

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A working paper, published by the European Central Bank on June 18, develops an endogenous model of credit risk that aims to highlight the limits of standard credit risk modelling.

The authors, Jürgen Eichberger, Klaus Rheinberger and Martin Summer, use a general equilibrium model of credit risk as an extension of the capital asset pricing model. They argue that this better reflects the "feedback effects" between the behaviour of individuals, institutions and the economy than previous exogenous

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