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Working Paper
Nonlinear relationship between permanent and transitory components of monetary aggregates and the economy

This paper uses several methods to study the interrelationship among Divisia monetary aggregates, prices, and income, allowing for nonstationary, nonlinearities, asymmetries, and time-varying relationships among the series. We propose a multivariate regime switching unobserved components model to obtain transitory and permanent components for each series, allowing for potential recurrent and structural changes in their dynamics. Each component follows distinct two-state Markov processes representing low or high phases. Since the lead-lag relationship between the phases can vary over time, ...
Working Papers , Paper 2013-018

Working Paper
What does the yield on subordinated bank debt measure?

We provide evidence that a bank's subordinated debt yield spread is not, by itself, a sufficient measure of default risk. We use a model in which subordinated debt is held by investors with superior knowledge ("informed investor hypothesis"). First, we show that in theory the yield spread on subordinated debt must compensate investors for expected loss plus give them an incentive not to prefer senior debt. Second we present strong empirical evidence in favor of the informed investor hypothesis and of the existence of the incentive premium predicted by the model. Using data on the timing and ...
Finance and Economics Discussion Series , Paper 2004-19

Working Paper
Asymmetric Information, Dynamic Debt Issuance, and the Term Structure of Credit Spreads

We propose a tractable model of a firm?s dynamic debt and equity issuance policies in the presence of asymmetric information. Because ?investment-grade? firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from infusing capital into the firm by issuing new debt to service existing debt, thus avoiding default. The implication is that the ?asymmetric information channel? can generate jumps to default (from the creditors? perspective) only for those "high-yield" firms that have exhausted their ability to borrow. ...
Working Paper Series , Paper WP-2019-8

Journal Article
Game strategy in fiscal straits: When government debts become large, lessons of game theory might help avoid a crisis

Related links:
Econ Focus , Volume 16 , Issue 4Q , Pages 24-28

Conference Paper
The lender's view of debt and equity: the case of pension funds

Conference Series ; [Proceedings] , Volume 33 , Pages 106-135

Journal Article
The roles of debt and equity in financing corporate investments

New England Economic Review , Issue Jul , Pages 25-48

Working Paper
Default and the maturity structure in sovereign bonds

This paper studies the maturity composition and the term structure of interest rate spreads of government debt in emerging markets. We document that in Argentina, Brazil, Mexico, and Russia, when interest rate spreads rise, debt maturity shortens and the spread on short-term bonds is higher than on long-term bonds. To account for this pattern, we build a dynamic model of international borrowing with endogenous default and multiple maturities of debt. Short-term debt can deliver higher immediate consumption than long-term debt; large longterm loans are not available because the borrower cannot ...
Globalization Institute Working Papers , Paper 19

Working Paper
Using subordinated debt to monitor bank holding companies: is it feasible?

Much research is needed to implement a supervisory surveillance system for banking organizations that relies on subordinated debt and other market data. This paper is germane to that task. We find subordinated debt spreads are most consistent across data sources for the most liquid bonds (i.e., those of relatively large issuance size, relatively young age, issued by relatively large firms) traded in a relatively robust overall bond market. We also find there is a high degree of concordance in rankings of firms by their minimum spreads across bonds with especially strong agreement about which ...
Finance and Economics Discussion Series , Paper 2001-22

Journal Article
Deficits, debt and looming disaster : reform of entitlement programs may be the only hope

With government deficits and debt at record highs, the long-term fiscal outlook for the U.S. requires serious attention, most agree. The fix is most likely going to have to start with fundamental reforms of entitlement programs.
The Regional Economist , Issue Jan , Pages 4-9

Journal Article
Is rising leverage a problem?

FRBSF Economic Letter



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