The Core, the Periphery, and the Disaster
UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance
Paper Title: The Core, the Periphery, and the Disaster: Corporate-Sovereign Nexus in COVID-19 Times
Speaker: Alberto Plazzi, Universita' della Svizzera italiana (Lugano)
Time and Date: 12-1 pm, Wednesday 1 November 2023
Location: Face-to-face seminar in room CB08.08.02, Level 8, Building 8, University of Technology Sydney, 14-28 Ultimo Rd, Ultimo, Sydney, Australia (Map of campus)
Abstract: 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.
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Co-ordinator: Kenny Phua
Enquiries: Chloe Qu
