The core, the periphery, and the disaster: corporate-sovereign nexus in COVID-19 times
- We show that the COVID-19 pandemic triggered a surge in the elasticity of non-financial corporate to sovereign credit default swaps in core EU countries, characterized by strong fiscal capacity. For peripheral countries with lower budgetary slackness, the pandemic had essentially no impact on such elasticity. This evidence is consistent with the disaster-induced repricing of government support, which we model through a rare-disaster asset pricing framework with bailout guarantees and defaultable public debt. The model implies that risk-adjusted guarantees in the core were 2.6 times those in the periphery, suggesting that fiscal capacity buffers provide relief to firms’ financing costs.
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| Author: | Ruggero Jappelli, Loriana PelizzonORCiDGND, Alberto PlazziORCiD |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-619961 |
| URL: | https://ssrn.com/abstract=3984103 |
| DOI: | https://doi.org/10.2139/ssrn.3984103 |
| Parent Title (English): | SAFE working paper ; No. 331 |
| Series (Serial Number): | SAFE working paper (331) |
| Publisher: | SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2021 |
| Year of first Publication: | 2021 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2021/12/20 |
| Tag: | Bailout; COVID-19; Credit Risk; Fiscal Capacity; Sovereign Risk |
| Issue: | October 20, 2021 |
| Page Number: | 63 |
| Note: | This preprint research paper has not been peer reviewed. |
| HeBIS-PPN: | 489304966 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
