Macroeconomic Impact On Expected Default Frequency

From a view of commercial bank's internal credit risk assessment system,the macro-economic factors are likely to play an important role in the transition of credit rating in future.But there is no systematic theory and completed experience to be referred,so we need to make a more in-depth exploration in modeling and theory.Therefore,this paper provides an idea and a method of empirical link between the corporate default and macroeconomic fundamentals.Try to find the relationship between the expected default frequency and macroeconomic factors.Then combining the credit risk measurement modeling,trying to making the prediction of the risk loss more comprehensive,more closer to the reality.Firstly,starting from the "wrong way risk" to explain the intrinsic link between market risk and credit risk,and to find out the theoretical principles of macroeconomic factors affecting changes in credit risk;followed by a detailed description of the idea of building a structure type KMV credit monitoring model,and with the statistical methods were compared,explained the advantages of selecting KMV model,and use the sample companies calculate the expected probability of default(EDF).Then using Vector Error Correction Model to explore the Long-term trends in expected default frequency and macroeconomic development indicators(CPI,GDP,short-term interest rate that is three months SHIBOR).The results show that:CPI and GDP promote the decrease of EDF,while the SHIBOR have the same direction in trend,this conclusion are statistically significant.Finally,according to the root mean square error,the model was evaluated.The results show that the model which takes these macroeconomic variables into consideration performs better than ordinary models.