codykallen
commented
4 years ago Premiums on debt liabilities may be estimated separately by industry (once firms are split by industry). Premiums on debt assets should be the same across industries, except for financial industries.
The current version of the NID model begins with debt assets and liabilities from the Financial Accounts, computes estimated interest income and interest expense, and rescales to match the net interest deduction in SOI data. However, the SOI data include debt assets and liabilities, so it seems unnecessary to rely on the FA for such measures, especially as the FA does not provide breakdowns by industry.
A revised approach would simply take debt assets and liabilities from the SOI balance sheet data, estimate the relevant risk premiums, and forecast from those. This would also simplify the interest model, as interest would then only be based on current liabilities and interest rates, not historical originations and interest rates.