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Journal Article
Editor's introduction
Gavin, William T. (2010-05)
We have been wrestling with one of the most severe recessions in the post-World War II era; moreover, it has been accompanied by a widespread financial crisis. After unprecedented policy responses, there are signs of recovery on both fronts. So, it is not too early to take stock of our actions and attempt to learn lessons from our recent past - lessons for monetary policy, financial regulation, and other aspects of the crisis. My objective here is to focus on lessons for monetary policy alone and leave discussion of regulatory issues and financial markets for another day.
Review , Volume 92 , Issue May , Pages 225-228

Working Paper
Creditor control of free cash flow
Huang, Rocco (2009)
With free cash flows, borrowers can accumulate cash or voluntarily pay down debts. However, sometimes creditors impose a mandatory repayment covenant called "excess cash flow sweep" in loan contracts to force borrowers to repay debts ahead of schedule. About 17 percent of borrowers in the authors' sample (1995-2006) have this covenant attached to at least one of their loans. The author finds that the sweep covenant is more likely to be imposed on borrowers with higher leverage (i.e., where risk shifting by equity holders is more likely). The results are robust to including borrower fixed ...
Working Papers , Paper 09-30

Working Paper
A tale of two commitments: equilibrium default and temptation
Nakajima, Makoto (2013-12-11)
I construct the life-cycle model with equilibrium default and preferences featuring temptation and self-control. The model provides quantitatively similar answers to positive questions such as the causes of the observed rise in debt and bankruptcies and macroeconomic implications of the 2005 bankruptcy reform, as the standard model without temptation. However, the temptation model provides contrasting welfare implications, because of overborrowing when the borrowing constraint is relaxed. Specifically, the 2005 bankruptcy reform has an overall negative welfare effect, according to the ...
Working Papers , Paper 14-1

Journal Article
The burden of debt
Tallman, Ellis W. (2001-04)
EconSouth , Volume 3 , Issue Q2 , Pages 1

Working Paper
Does getting a mortgage affect credit card use?
Stavins, Joanna; Fulford, Scott L. (2019-05-01)
Buying a house changes a household?s balance sheet by simultaneously reducing liquidity and introducing mortgage payments, which may leave the household more exposed to other shocks. We find that this change affects credit card use in two ways: A debt effect increases credit card spending, while a credit effect leads to higher credit limits. In the short run, a new mortgage acquisition has a robust and statistically significant positive effect on credit card utilization ? the fraction of a consumer?s credit card limit that is used ? of approximately 11 percentage points. Before the 2008 ...
Working Papers , Paper 19-8

Journal Article
On the needed quantity of government debt
Prescott, Edward C.; Birkeland, Kathryn (2007-11)
People are enjoying longer retirement periods, and population growth is slowing and, in some countries, falling. In this article, we determine the implications of these demographic changes for the needed amount of government debt. If tax rates and the transfer share of gross national income (GNI) are both high, the needed debt is near zero. With such a system, however, huge deadweight losses are incurred as a result of the high tax rate on labor income. With a savings system, a large government debt to annual GNI ratio is needed. In a country with early retirement and no population growth, ...
Quarterly Review , Volume 31 , Issue Nov , Pages 2-15

Report
Sustainable plans and debt
Kehoe, Patrick J.; Chari, V. V. (1989)
This paper presents a simple general equilibrium model of optimal taxation similar to that of Lucas and Stokey (1983), except that we let the government default on its debt. As a benchmark, we consider Ramsey equilibria in which the government can precommit its policies at the beginning of time. We then consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational. We concentrate on trigger mechanisms which specify reversion to the finite horizon equilibrium after deviations by the government. The main result is that no ...
Staff Report , Paper 125

Journal Article
Market discipline and subordinated debt: a review of some salient issues
Bliss, Robert R. (2001-01)
Requiring banks to issue subordinated debt is one proposal to bring market discipline to bear in aiding regulatory supervision. This article explores the frictions that produce a need for discipline (agency problems) and the mechanisms markets have evolved for dealing with these frictions. Following an examination of the rationales and assumptions underlying subordinated debt proposals, the article concludes that the case tying regulatory intervention to subordinated debt spreads is not clear-cut, and that use of all available information, including equity returns and debt yields, when ...
Economic Perspectives , Volume 25 , Issue Q I , Pages 24-45

Working Paper
Debt covenants and renegotiation
Mester, Loretta J.; Berlin, Mitchell (1992)
Working Papers , Paper 92-9

Journal Article
The Latin American debt problem and U.S. agriculture
Drabenstott, Mark; Henneberry, David; Barkema, Alan (1988-07)
U.S. agriculture and Latin American countries share some important common ground -a steady stream of agricultural trade between the United States and Latin America. As U.S. agriculture emerges from its debt problem of the 1980s and the problem lingers on in Latin America, both economies stand to benefit from macroeconomic and trade policies that encourage global economic growth.
Economic Review , Volume 73 , Issue Jul , Pages 21-38

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