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Report
Bond market discipline of banks: is the market tough enough?
Morgan, Donald P.; Stiroh, Kevin J. (1999-12-01)
As the banking business grows more complex, government supervisors of banks seem increasingly willing to share the role of policing bank risk with private investors, especially bondholders. This paper investigates the disciplinary role of markets using bond spreads, ratings, and bank portfolio data on over 4,100 new bonds issued between 1993 and 1998, including almost 600 bond issues by banks and bank holding companies. We find that the bond spread/rating relationship is the same for the bank issues as for nonbank issues, especially among the investment grade issues. This suggests that the ...
Staff Reports , Paper 95

Working Paper
Self-Fulfilling Debt Crises, Revisited: The Art of the Desperate Deal
Stangebye, Zachary; Aguiar, Mark; Cole, Harold L.; Chatterjee, Satyajit (2017-03-27)
We revisit self-fulfilling rollover crises by introducing an alternative equilibrium selection that involves bond auctions at depressed but strictly positive equilibrium prices, a scenario in line with observed sovereign debt crises. We refer to these auctions as ?desperate deals?, the defining feature of which is a price schedule that makes the government indifferent to default or repayment. The government randomizes at the time of repayment, which we show can be implemented in pure strategies by introducing stochastic political payoffs or external bailouts. Quantitatively, auctions at ...
Working Papers , Paper 17-7

Working Paper
Did adhering to the gold standard reduce the cost of capital?
Chabot, Benjamin; Alquist, Ron (2010)
A commonly cited benefit of the pre-World War One gold standard is that it reduced the cost of international borrowing by signaling a country?s commitment to financial probity. Using a newly constructed data set that consists of more than 55,000 monthly sovereign bond returns, we test if gold-standard adherence was negatively correlated with the cost of capital. Conditional on UK risk factors, we find no evidence that the bonds issued by countries off gold earned systematically higher excess returns than the bonds issued by countries on gold. Our results are robust to allowing betas to differ ...
Working Paper Series , Paper WP-2010-13

Working Paper
Maturity, indebtedness, and default risk
Eyigungor, Burcu; Chatterjee, Satyajit (2009)
We present a novel and tractable model of long-term sovereign debt. We make two sets of contributions. First, on the substantive side, using Argentina as a test case we show that unlike one-period debt models, our model of long-term sovereign debt is capable of accounting for the average spread, the average default frequency, and the average debt-to-output ratio of Argentina over the 1991-2001 period without any deterioration in the model's ability to account for Argentina's cyclical facts. Using our calibrated model we determine what Argentina's debt, default frequency and welfare would have ...
Working Papers , Paper 09-2

Working Paper
International channels of the Fed’s unconventional monetary policy
Bauer, Michael D.; Neely, Christopher J. (2012)
Previous research has established that the Federal Reserve large scale asset purchases (LSAPs) significantly influenced international bond yields. This paper analyzes the channels through which these effects occurred. We use dynamic term structure models to decompose international yield changes into changes in term premia and expected short rates. The conclusions for most countries are model dependent. Models that impose a unit root tend to imply large signaling effects for Australia, Canada, Germany and the United States. Models that do not restrict persistence imply negligible signaling ...
Working Papers , Paper 2012-028

Journal Article
The bond rate and actual future inflation
Mehra, Yash P. (1998-04)
Economic Quarterly , Issue Spr , Pages 27-47

Working Paper
Determinants of long-term bond risk premiums
Jackson, William D. (1976)
Investor risk aversion in the long-term bond markets strongly influences the ability of many businesses to finance capital expenditures.
Working Paper , Paper 76-03

Working Paper
Bank Intermediation and Persistent Liquidity Effects in the Presence of a Frictionless Bond Market
Marquis, Milton H.; Einarsson, Tor (2000-11-01)
An “expansionary” monetary policy that increases the growth rate of bank reserves is generally believed by policy makers to induce a “liquidity effect”, or a persistent decline in short-term nominal interest rates, that stimulates real activity. Christiano, et al. (1991,1995,1997) have incorporated this feature of the economy into equilibrium business cycle models by introducing a commercial bank that acquires deposits from households and channels those funds to firms, which use them to fund their working capital expenses. Bank deposits are the only interest-bearing financial asset ...
Working Paper Series , Paper 2000-08

Journal Article
Economic factors, monetary policy and expected returns on stocks and bonds
Booth, Lena Chua; Booth, James R. (1997)
This paper examines the impact of the stance of monetary policy on security returns. The two measures of the stance of monetary policy used, the federal funds rate and an index based on the changes in the discount rate, contain significant information that can be used to forecast expected stock and bond portfolio returns. Specifically, we find that a restrictive (expansive) monetary policy stance decreases (increases) returns of large and small stock portfolios and in some cases, corporate bond portfolios. The monetary policy stance measures have explanatory power in forecasting stock and ...
Economic Review

Report
Trend and cycle in bond premia
Piazzesi, Monika; Schneider, Martin (2009)
Common statistical measures of bond risk premia are volatile and countercyclical. This paper uses survey data on interest rate forecasts to construct subjective bond risk premia. Subjective premia are less volatile and not very cyclical; instead they are high, only around the early 1980s. The reason for the discrepancy is that survey forecasts of interest rates are made as if both the level and the slope of the yield curve are more persistent than under common statistical models. The paper then proposes a consumption based asset pricing model with learning to explain jointly the difference ...
Staff Report , Paper 424

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