SMU SOE Seminar (Apr 17, 2019): Asset Quality Dynamics

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ABSTRACT We describe a dynamic extension of Allen and Gale (1998)’s optimal security de-sign model and provide a recursive method for computing equilibria in the resulting environment. The model is quantitatively consistent with the cyclical properties of safe corporate debt issues, in particular with the fact that those issues are less procyclical than other sources of corporate ﬁnancing. It is also consistent with the countercyclicality of risk spreads on corporate debt. We then use the model to measure the eﬀect of a protracted periods of low safe yields, one of the main features of the so-called “saving glut” the global economy is currently experiencing. A long period of low interest rates on safe debt has little impact on the level of economic activity but causes output and investment volatility to fall. Keywords: Endogenous Security Markets, Corporate Debt, Savings Glut. JEL Codes: E44, E30. Click here to view the paper. Click here to view the CV.
		PRESENTER Erwan Quintin University of Wisconsin-Madison
		RESEARCH FIELDS Financial Economics Macroeconomics
		DATE: 17 April 2019 (Wednesday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903