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Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States

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Author Info
Bayoumi, Tamim
Goldstein, Morris
Woglom, Geoffrey

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Abstract

The degree to which credit markets discipline sovereign borrowers is investigated by estimating the supply curve for debt faced by US states. The results generally support an optimistic view of the market discipline hypothesis, with credit markets providing incentives for sovereign borrowers to restrain borrowing. While the risk premium on bond yields is estimated to increase only gradually at low levels of debt, this effect appears to become much larger as debt rises. There is also some evidence that credit markets may withhold access to credit at very high levels of debt.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1088.

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Date of creation: Jan 1995
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Handle: RePEc:cpr:ceprdp:1088

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Related research
Keywords: Credit Market; Fiscal Discipline;

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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This page was last updated on 2009-11-25.

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