We analyze government interventions to recapitalize a banking sector that restricts lending to firms because of debt overhang. We find that the efficient recapitalization program injects capital against preferred stock plus warrants and conditions implementation on sufficient bank participation. Preferred stock plus warrants reduces opportunistic participation by banks that do not require recap...

This paper attempts to extract real-time market-based estimates of the default probabilities on Government debt for a selection of European countries, using a technique applied by Bierman and Hass (1979) and Fons (1987) in the corporate debt market. The technique involves solving the debt pricing equation for the martingale probabilities which under the no-arbitrage assumption equate the price ...

This paper considers a small open economy where government pursues debt targeting policy. In this setting, I find the optimal debt targeting rule crucially hinges on the assumption of bond market structure, i.e. whether household can purchase state-contingent bond. In addition, the country’s foreign asset holding and government’s debt level may have substantial impact on the optimal debt target...

We re-examine optimal monetary policy when lump-sum taxes are unavailable. Under commitment, we show that, with alternative utility functions to that considered in Nicolini’s related analysis, the direction of the incentive to cheat may depend on the initial level of government debt, with low debt creating an incentive towards surprise deflation, but high debt the reverse. Under discretion, we ...

We investigate the relationship between household debt and health outcomes for OECD countries over the period 1995 to 2012. Using a dataset of aggregated, standardized and objective measures of household debt and health outcomes, we estimate an instrumental variable (GMM) model in order to deal with endogeneity and reverse causality concerns between health and debt. We find that higher househol...