Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s

39 Pages Posted: 24 Jun 2019

See all articles by Huixin Bi

Huixin Bi

Federal Reserve Bank of Kansas City

Nora Traum

HEC Montreal - Institute of Applied Economics

Date Written: June 3, 2019

Abstract

This paper examines how newspaper reporting affects government bond prices during the U.S. state default of the 1840s. Using unsupervised machine learning algorithms, the paper constructs novel “fiscal information indices” for state governments based on U.S. newspapers at the time. The impact of the indices on government bond prices varies over time. Before the crisis, the entry of new states into the bond market spurred competition: more state-specific fiscal news imposed downward pressure on bond prices for established states. During the crisis, more state-specific fiscal information lowered bond prices for states with less responsible fiscal policy.

Keywords: sovereign default; information; fiscal policy

JEL Classification: E62, H30, H360, N41

Suggested Citation

Bi, Huixin and Traum, Nora, Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s (June 3, 2019). Federal Reserve Bank of Kansas City Working Paper No. 19-04, Available at SSRN: https://ssrn.com/abstract=3409429 or http://dx.doi.org/10.2139/ssrn.3409429

Huixin Bi (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

Nora Traum

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

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