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

June 24, 2019
By Huixin Bi, Research and Policy Officer and Nora Traum


Research Working PaperA new measure of fiscal information shows that fiscal news affects the evolution and contagion of sovereign default.

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.

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RWP 19-04, June 2019

JEL Classification: E62, H30, N41

Article Citation

  • Bi, Huixin, and Nora Traum. 2019. “Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s.” Federal Reserve Bank of Kansas City, Research Working Paper no. 19-04, June. Available at https://doi.org/10.18651/RWP2019-04

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