Working Paper

Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s

Abstract: This paper examines how newspaper reporting affects government bond prices during the U.S. state default of the 1840s. Using unsupervised machine learning algorithms, the paper first constructs novel ``fiscal information indices'' for state governments based on U.S. newspapers at the time. The impact of the indices on government bond prices varied over time. Before the crisis, the entry of new western states into the bond market spurred competition: more state-specific fiscal news imposed downward pressure on bond prices for established states in the market. During the crisis, more state-specific fiscal information increased (lowered) bond prices for states with sound (unsound) fiscal policy.

Keywords: Sovereign Default; Information; Fiscal Policy;

JEL Classification: E62; H30; N41;

https://doi.org/10.18651/RWP2019-04

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2019-06-01

Number: RWP 19-4

Pages: 37 pages