{
  "title": "How Much Leverage is too Much, or Does Corporate Risk Determine the Severity of a Recession?",
  "publication": "IMF Working Papers, January 1, 2003",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/how-much-leverage-is-too-much-or-does-corporate-risk-determine-the-severity-of-a-recession-16256",
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  "summary": "Economic theory suggests that vulnerable financial conditions of the corporate sector can trigger or worsen an economy-wide recession.",
  "sections": [
    {
      "heading": "Core proposition and summary findings",
      "content": "- Economic theory suggests that vulnerable financial conditions of the corporate sector can trigger or worsen an economy-wide recession.\n- The paper proposes the Corporate Vulnerability Index (CVI) as a measure of corporate vulnerability.\n- The CVI is constructed as the default probability for the entire corporate sector, using the model of corporate debt by Anderson, Sundaresan, and Tychon (1996).\n- The CVI is shown to be a significant predictor of the probability of a recession 4 to 6 quarters ahead, even controlling for other leading indicators.\n- An increase in the CVI is also associated with an increase in the probability of a more severe and lengthy recession 3 to 6 quarters ahead."
    },
    {
      "heading": "CVI construction and methodology",
      "content": "- CVI definition: the default probability for the entire corporate sector.\n- Underlying model: structural model of corporate debt by Anderson, Sundaresan, and Tychon (1996).\n- Key technical terms preserved as used in the source: aggregate corporate bond yield datum, bond value, contract term, CVI construction, default probability, recovery rate, structural models of corporate debt, yield curve."
    },
    {
      "heading": "Empirical results and predictive performance",
      "content": "- Predictive horizon: CVI predicts probability of recession 4 to 6 quarters ahead.\n- Severity link: CVI increases are associated with higher probability of more severe and lengthy recession 3 to 6 quarters ahead.\n- Estimation techniques referenced: probit, ordered probit.\n- Controls: results hold even when controlling for other leading indicators."
    },
    {
      "heading": "Policy-relevant implications and focus areas",
      "content": "- Corporate-sector financial vulnerability (as measured by CVI) is a useful leading indicator for macroeconomic risk assessment.\n- Monitoring CVI could inform early-warning systems and macroprudential policy aimed at mitigating recession risk tied to corporate leverage and default probability."
    },
    {
      "heading": "Publication and metadata",
      "content": "- Author: Iryna V. Ivaschenko\n- Date: January 1, 2003\n- Series: Working Paper No. 2003/003\n- Issue: 003\n- Volume: 2003\n- Pages: 32\n- DOI: https://doi.org/10.5089/9781451841923.001\n- Stock No: WPIEA0032003\n- ISBN: 9781451841923\n- ISSN: 1018-5941\n- Citation format shown on page: Iryna V. Ivaschenko \"How Much Leverage is too Much, or Does Corporate Risk Determine the Severity of a Recession?\", IMF Working Papers 2003, 003 (2003), accessed 9/9/2026, https://doi.org/10.5089/9781451841923.001\n\nIMF Working Paper — Iryna V. Ivaschenko, Working Paper No. 2003/003\n\n---\n\n Content in this bundle\n\n- wp0303\n  - wp0303 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp0303 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/how-much-leverage-is-too-much-or-does-corporate-risk-determine-the-severity-of-a-recession-16256"
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    "Authors: Iryna V. Ivaschenko",
    "Published: January 1, 2003",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451841923.001",
    "Economic theory suggests that vulnerable financial conditions of the corporate sector can trigger or worsen an economy-wide recession.",
    "The paper proposes the Corporate Vulnerability Index (CVI) as a measure of corporate vulnerability.",
    "The CVI is constructed as the default probability for the entire corporate sector, using the model of corporate debt by Anderson, Sundaresan, and Tychon (1996).",
    "The CVI is shown to be a significant predictor of the probability of a recession 4 to 6 quarters ahead, even controlling for other leading indicators.",
    "An increase in the CVI is also associated with an increase in the probability of a more severe and lengthy recession 3 to 6 quarters ahead.",
    "CVI definition: the default probability for the entire corporate sector.",
    "Underlying model: structural model of corporate debt by Anderson, Sundaresan, and Tychon (1996).",
    "Key technical terms preserved as used in the source: aggregate corporate bond yield datum, bond value, contract term, CVI construction, default probability, recovery rate, structural models of corporate debt, yield curve.",
    "Predictive horizon: CVI predicts probability of recession 4 to 6 quarters ahead.",
    "Severity link: CVI increases are associated with higher probability of more severe and lengthy recession 3 to 6 quarters ahead.",
    "Estimation techniques referenced: probit, ordered probit.",
    "Controls: results hold even when controlling for other leading indicators.",
    "Corporate-sector financial vulnerability (as measured by CVI) is a useful leading indicator for macroeconomic risk assessment.",
    "Monitoring CVI could inform early-warning systems and macroprudential policy aimed at mitigating recession risk tied to corporate leverage and default probability.",
    "Author: Iryna V. Ivaschenko",
    "Date: January 1, 2003",
    "Series: Working Paper No. 2003/003",
    "Issue: 003",
    "Volume: 2003",
    "Pages: 32",
    "DOI: https://doi.org/10.5089/9781451841923.001",
    "Stock No: WPIEA0032003",
    "ISBN: 9781451841923",
    "ISSN: 1018-5941",
    "Citation format shown on page: Iryna V. Ivaschenko \"How Much Leverage is too Much, or Does Corporate Risk Determine the Severity of a Recession?\", IMF Working Papers 2003, 003 (2003), accessed 9/9/2026, https://doi.org/10.5089/9781451841923.001",
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