Interest rate swaps and corporate default

Urban Jermann and Vivian Yue

No 1590, Working Paper Series from European Central Bank

Abstract: This paper studies firms' usage of interest rate swaps to manage risk in a model economy driven by aggregate productivity shocks, inflation shocks, and counter-cyclical idiosyncratic productivity risk. Consistent with empirical evidence, firms in the model are fixed-rate payers, and swap positions are negatively correlated with the term spread. In the model, swaps affect firms' investment decisions and debt pricing only very moderately, and the availability of swaps generates only small economic gains for the typical firm. JEL Classification: E44, G12

Keywords: corporate default; debt pricing; Interest rate swaps; risk management; swap position (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Interest rate swaps and corporate default (2018)
Working Paper: Interest rate swaps and corporate default (2013)
Working Paper: Interest Rate Swap and Corporate Default (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20131590

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