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

Author

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  • Huixin Bi
  • Nora Traum

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.

Suggested Citation

  • Huixin Bi & Nora Traum, 2019. "Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s," Research Working Paper RWP 19-4, Federal Reserve Bank of Kansas City, revised 01 Jun 2019.
  • Handle: RePEc:fip:fedkrw:rwp19-04
    DOI: 10.18651/RWP2019-04
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    More about this item

    Keywords

    Information; Fiscal Policy; Sovereign Default;

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • N41 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: Pre-1913

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