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Results
- 08 Sep 2016
- Working Paper Summaries
A Model of Credit Market Sentiment
by Robin Greenwood, Samuel G. Hanson, and Lawrence J. Jin
Recent empirical research in finance and economics has revived the idea that investor sentiment drives credit booms and busts. To explore the drivers of sentiment in credit markets, the authors model the two-way feedback between credit market sentiment and credit market outcomes. In their model the propagation of credit cycles is driven by the interplay between expectations and the refinancing nature of credit markets.
- 04 Mar 2016
- Working Paper Summaries
Credit-Market Sentiment and the Business Cycle
by David Lopez-Salido, Jeremy C. Stein, and Egon Zakrajsek
Using United States data from 1929 to 2013, Jeremy C. Stein and colleagues emphasize the role of credit-market sentiment as an important driver of the business cycle.
Sovereign Risk, Currency Risk, and Corporate Balance Sheets
Why would a country default on its sovereign debt when the government could instead inflate it away? The authors argue that a government is more inclined to default than inflate when the currency mismatch of the corporate sector implies large adverse balance sheet effects from a currency depreciation. To make this argument they construct a dataset on the currency composition of emerging market external borrowing. Results show that the corporate sector relies on external foreign currency debt even as sovereigns have swiftly moved toward borrowing in their own currency.