06 Jun Profile step 3 portrays the relationship ranging from security and you can default intended by the estimates
The brand new strong sectors portray the fresh new unconditional standard rate at each and every collateral level due to the fact empty groups will be mediocre exchangeability surprise chances ( ) at each guarantee level. The difference between the two sets of sectors stands for the proper component of standard that's created by the bad collateral. Whenever individuals commonly seriously underwater, standard can be entirely taken into account from the liquidity shocks, because revealed from the hollow sectors overlapping the latest strong ones. In keeping with Foote mais aussi al. (2008), being a little underwater was obviously perhaps not an adequate reputation to own default. Yet not, between -ten and you may -15 % equity, the new unconditional and you can liquidity-determined default cost diverge, indicating one to collateral will get a significant, independent predictor away from default conclusion because consumers be much more underwater.