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

Huixin Bi and Nora Traum

No RWP 19-4, Research Working Paper from Federal Reserve Bank of Kansas City

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 first 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 varied over time. Before the crisis, the entry of new western states into the bond market spurred competition: more state-specific fiscal news imposed downward pressure on bond prices for established states in the market. During the crisis, more state-specific fiscal information increased (lowered) bond prices for states with sound (unsound) fiscal policy.

Keywords: Sovereign Default; Information; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E62 H30 N41 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-06-01
New Economics Papers: this item is included in nep-big, nep-cmp, nep-his, nep-mac, nep-pay and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:rwp19-04

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DOI: 10.18651/RWP2019-04

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