For many financial institutions credit risk, and in particular credit risk on loans to corporate borrowers, is the major source of risk. Good estimates of credit risk are important both for pricing individual loans and managing risk at the aggregate level. The credit risk on loans to the corporate sector can be estimated in different ways. The model presented here links macroeconomic variables directly to an industry-level measure of credit risk. The model’s prediction performance is evaluated by backtests for the period 1988–2008.

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