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Working Paper
Anatomy of Corporate Credit Spreads: The Great Recession vs. COVID-19
We compare the evolution of corporate credit spreads during the Great Recession and the COVID-19 pandemic. The two crises featured increases of similar magnitudes in the median and cross-sectional dispersion of credit spreads, but the pandemic was short-lived and different sectors were affected. The micro-data reveal larger differences between the two episodes: the Great Recession featured an increase in the across-firm dispersion, and leverage was an important predictor of credit spreads. Differently, the COVID-19 crisis displayed a larger increase in within-firm dispersion, and funding ...
Working Paper
Credit and Liquidity Policies during Large Crises
We study the evolution of firm financials during two large crises: the Great Financial Crisis (GFC) and the COVID-19 pandemic. While the two crises featured similar increases in corporate spreads, corporate debt and liquid asset holdings moved in opposite directions. The micro-data reveal that firm leverage was a more important predictor of firm-level credit spreads and investment during the GFC, but that firm funding liquidity was more important during the pandemic. We augment a dynamic model of firm capital structure with an explicit motive to hold liquid assets, and calibrate it to match ...
Working Paper
Credit and Liquidity Policies during Large Crises
We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of productivity and financial shocks, while COVID-19 also featured liquidity ...
Credit Spreads during the Financial Crisis and COVID-19
Corporate bond credit spreads widened during both the financial crisis and COVID-19 pandemic. How did spreads respond to policy actions?
Working Paper
Credit and Liquidity Policies during Large Crises
We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of real and financial shocks, while COVID-19 also featured liquidity shocks. We ...
Working Paper
The Sine Aggregatio Approach to Applied Macro
We develop a method to use disaggregate data to conduct causal inference in macroeconomics. The approach permits one to infer the aggregate effect of a macro treatment using regional outcome data and a valid instrument. We estimate a macro effect without (sine) the aggregation (aggregatio) of the outcome variable. We exploit cross-series parameter restrictions to increase precision relative to traditional, aggregate series estimates and provide a method to assess robustness to modest departures from these restrictions. We illustrate our method via estimating the jobs effect of oil price ...
Working Paper
Credit and Liquidity Policies during Large Crises
We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of real and financial shocks, while COVID-19 also featured liquidity shocks. We ...
Working Paper
Credit and Liquidity Policies during Large Crises
We compare firms’ financials during the Great Financial Crisis (GFC) and COVID-19. While the two crises featured similar increases in credit spreads, debt and liquid assets decreased during the GFC but increased during COVID-19. In the cross-section, leverage was the primary determinant of credit spreads and investment during the GFC, but liquidity was more important during COVID-19. We augment a quantitative model of firm capital structure with a motive to hold liquid assets. The GFC resembled a combination of real and financial shocks, while COVID-19 also featured liquidity shocks. We ...
Corporate Bond Spreads and the Pandemic IV: Liquidity Buffers
The cost of borrowing rose for most firms during the pandemic-related disruption of financial markets, but firms with greater liquidity have had smaller increases in credit spreads.
Working Paper
The Sine Aggregatio Approach to Applied Macro
We develop a method to use disaggregate data to conduct causal inference in macroeconomics. The approach permits one to infer the aggregate effect of a macro treatment using regional outcome data and a valid instrument. We estimate a macro effect without (sine) the aggregation (aggregatio) of the outcome variable. We exploit cross-equation parameter restrictions to increase precision relative to traditional, aggregate series estimates and provide a method to assess robustness to departures from these restrictions. We illustrate our method via estimating the jobs effect of oil price changes ...