Interest rate swaps and corporate default

Arbeitspapier

This paper studies firms’ usage of interest rate swaps to manage risk in a model economy driven by aggregate productivity shocks, inflation shocks, and counter-cyclical idiosyncratic productivity risk. Consistent with empirical evidence, firms in the model are fixed-rate payers, and swap positions are negatively correlated with the term spread. In the model, swaps affect firms’ investment decisions and debt pricing only very moderately, and the availability of swaps generates only small economic gains for the typical firm.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1590

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: corporate default ; debt pricing ; Interest rate swaps ; risk management ; swap position ; Zinsderivat ; Unternehmensfinanzierung ; Inflation ; Schock ; Produktivitätsentwicklung ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jermann, Urban J. ; Yue, Vivian Z.
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/154023
• Last update: 10.03.2025, 11:43 AM CET