Speaker: Brian Livingston
Title: The Price of Silence: Learning from Fiscal Inaction
Abstract: This paper develops a model of sovereign debt pricing in which the government has a latent fiscal corrective capacity. Bayesian investors learn about corrective capacity by observing fiscal policy choices. I show that deterioration in fiscal beliefs following spells of fiscal inaction increase government borrowing costs and term premia, particularly when initial beliefs are held with greater uncertainty. Pricing effects are much larger at longer maturities.
Maggie Hendrix
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