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Bond Insurance and Public Sector Employment

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Abstract

This paper uses a unique data set of local governments’ bond issuance, expenditure, and employment to study the impact of the monoline insurance industry’s demise on local governments’ operations. To show causality, I use an instrumental variable approach that exploits persistent insurance relationships and the cross-sectional variation in insurers’ exposure to high-quality residential mortgage-backed securities. Governments associated with ailing insurers issued less debt, cut expenditures, and hired fewer workers. These effects are persistent. Partial equilibrium calculations show that affected governments’ aggregate expenditures and employment levels in 2017 would have been 6% to 10% higher if bond insurance had remained available

Suggested Citation

  • Natee Amornsiripanitch, 2022. "Bond Insurance and Public Sector Employment," Working Papers 22-03, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:93684
    DOI: 10.21799/frbp.wp.2022.03
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    More about this item

    Keywords

    Bond insurance; municipal bonds; real effects; financial crisis;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • J00 - Labor and Demographic Economics - - General - - - General

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