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 public guarantees and defaultable sovereign 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

Date et heure: 
Jeudi 30 mars 2023, 14:30 - 16:00
National Bank of Belgium, KU Leuven, UAntwerpen, UCLouvain, UGent, ULB, ULiège, UNamur and VUB
Alberto Plazzi (Università della Svizzera Italiana, Swiss Finance Institute)
Conference Room Lamfalussy, entrance: bd de Berlaimont 14, 1000 Brussels & Microsoft Teams meeting
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