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Working Papers

Crowding Out and Banking Crises (Job Market Paper)

This paper studies the effect of government issuance on private issuance during banking crises using transaction-level bond and loan data from 66 countries between 1991 and 2017. Governments rarely issue loans, preferring to issue in bond markets. Firms, on the other hand, receive most of their financing from banks. During banking crises, as the supply of domestic loans decreases, firms switch to issuing bonds in domestic markets. Using a novel instrument based on maturing debt to overcome the potential endogeneity of government issuance, I find that firms must compete with the government for funds in the domestic bond market and are crowded out from this market as a result. This happens not only in developing countries, but in advanced countries as well. I also show that firms with the ability to tap foreign debt markets switch to these markets when crowding out occurs in domestic bond markets. Lastly, I show that more developed domestic bond markets mitigate, but do not eliminate, the degree to which crowding out occurs.
Financial Fractures: Sovereign Borrowing and Private Access to International Capital Markets with Graciela Kaminsky and Shiyi Wang

This paper studies whether surges in sovereign borrowing adversely affect the ability of corporations to tap international capital markets. Previous research documenting crowding out has concentrated on domestic markets, which are illiquid and segmented. In these constrained markets, government issuance crowds out corporate sector borrowing. In contrast, international markets are considered to be highly integrated across all countries and highly liquid. In this environment, government borrowing should not crowd out corporate issuance. However, this is not always the case. Occasionally, financial fractures appear, and panics ensue. We capture these periods of fractures, and test whether sovereign issuance constrains corporate sector access to international markets in periods when cracks appear.
The Cyclicality of Sovereign and Corporate Gross Debt Issuance

The Global Financial Crisis and the European Sovereign Crisis have fueled a renewed interest in fiscal multipliers and the cyclical characteristics of fiscal and monetary policy. Despite this resurgence, most prior research has not focused on the cyclical characteristics of government and corporate gross issuance. In this paper, I investigate the cyclicality of debt issuance in domestic as well as foreign capital markets. This has important implications for the extent to which, in times of economic stress, governments can tap capital markets to restore growth and firms can borrow to stay afloat. Preliminary evidence indicates that overall, private issuance is highly procyclical while sovereign issuance is countercyclical in advanced countries and acyclical in developing countries. When breaking down by market, I find that sovereign issuance is countercyclical in both domestic and foreign markets for advanced countries. However, in developing countries, while sovereign issuance is countercyclical in foreign markets, it is procyclical in domestic markets. This indicates that during periods of economic downturns, governments in developing countries borrow more in the domestic market and create further distortions. In terms of corporate issuance, in developing countries it is procyclical in both domestic and foreign markets. However, in advanced countries, while corporate issuance remains procyclical in foreign markets, it is slightly countercyclical in domestic markets.
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