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Default Risk, Risk Premium, and Corporate Resilience: The Role of Regulatory and Stabilization Policies

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  • Zakaria Firano
  • Doha Karaouch

Abstract

This study investigates the interaction between monetary and macroprudential policy measures and evaluates whether policymakers should address financial disruptions. To achieve this goal, we developed a dynamic stochastic general equilibrium model that incorporates frictions in financial markets and financial shocks alongside traditional macroeconomic shocks. One of the main focuses of macroprudential policies is to stabilize credit cycles. We used Moroccan data to estimate the model and assess various policy actions to counter imbalances in financial markets, including adjustments to the interest rate tool. Our findings highlight the benefits of addressing financial disruptions, the extent depending on the shock characteristics. While acting on interest rates in response to financial variables may stabilize some economic factors, it has the potential to increase the volatility of others substantially. The results confirm that the use of optimal regimes can reduce default processes and ensure companies stabilize risk premiums. Implementing such regulations leads to greater opening of the companies’ capital to external financing sources. JEL Classification C11, D53, D58, E52, E58

Suggested Citation

  • Zakaria Firano & Doha Karaouch, 2025. "Default Risk, Risk Premium, and Corporate Resilience: The Role of Regulatory and Stabilization Policies," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 17(1), pages 22-48, January.
    • Handle: RePEc:sae:emeeco:v:17:y:2025:i:1:p:22-48
    DOI: 10.1177/09749101241265422
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    More about this item

    Keywords

    Dynamic stochastic general equilibrium model; monetary policy; macroprudential policy; financial stability; default risk; financial frictions;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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