Internet Appendix for “Macroeconomic Conditions and the Puzzles of Credit Spreads and Capital Structure”

This internet appendix contains supplemental materials for the published article. It is organized as follows. Section A uses a simple example to illustrate how comovements among risk prices, default probabilities, and default losses raise the present value of expected default losses. Section B illustrates the scaling property. Section C provides detailed proofs of several propositions and formula for the risk premium of debt and equity in the model. Section D discusses the calibration of the Markov chain and examines its performance. Section E investigates the state-dependent default losses.