5 Works

Systematic Risk, Debt Maturity and the Term Structure of Credit Spreads

Hui Chen, Yu Xu & Jun Yang
We build a dynamic capital structure model to study the link between systematic risk exposure and debt maturity, as well as their joint impact on the term structure of credit spreads. Our model allows for time variation and lumpiness in the maturity structure. Relative to short-term debt, long-term debt is less prone to rollover risks, but its illiquidity raises the costs of financing. The risk premium embedded in the bankruptcy costs causes firms with high...

On What States Do Prices Depend? Answers from Ecuador

Craig Benedict, Mario J. Crucini & Anthony Landry
In this paper, we argue that differences in the cost structures across sectors play an important role in firms’ decisions to adjust their prices. We develop a menu-cost model of pricing in which retail firms intermediate trade between producers and consumers. An important facet of our analysis is that the labor-cost share of retail production differs across goods and services in the consumption basket. For example, the price of gasoline at the retail pump is...

Monetary Policy and Redistribution in Open Economies

Xing Guo, Pablo Ottonello & Diego J. Perez
Globalization has not integrated households equally into the international goods and financial markets. Because of this uneven international integration, external shocks to the economy can have different impacts across households. How does monetary policy influence these effects? We build a model of a small open economy featuring uneven international integration across households. Then we analyze the difference between a floating exchange rate regime and a fixed exchange rate regime to study the distributional effects of...

Accounting for Real Exchange Rates Using Micro‐Data

Mario J. Crucini & Anthony Landry
The classical dichotomy predicts that all of the time-series variance in the aggregate real exchange rate is accounted for by non-traded goods in the consumer price index (CPI) basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) claimed the opposite: that traded goods accounted for all of the variance. Using micro-data and recognizing that final good prices include both the cost of the goods themselves and local, non-traded inputs...

Analyzing Default Risk and Liquidity Demand during a Financial Crisis: The Case of Canada

Jason Allen, Ali Hortaçsu & Jakub Kastl
This paper explores the reliability of using prices of credit default swap contracts (CDS) as indicators of default probabilities during the 2007/2008 financial crisis. We use data from the Canadian financial system to show that these publicly available risk measures, while indicative of initial problems of the financial system as a whole, do not seem to correspond to risks implied by the cross-sectional heterogeneity in bank behavior in short-term lending markets. Strategies in, and reliance...

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Affiliations

  • National Bureau of Economic Research
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  • Bank of Canada
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  • Vanderbilt University
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  • State University of New York at Oswego
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  • University of Chicago
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