Imperial College London
Alternate

ProfessorGillesChemla

Business School

Professor of Finance
 
 
 
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Contact

 

+44 (0)20 7594 9161g.chemla Website

 
 
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Assistant

 

Ms Moira Rankin +44 (0)20 7594 9113

 
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Location

 

3.0453 Prince's GateSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{Chemla:2016:10.1016/j.jmoneco.2016.09.001,
author = {Chemla, GH and Hennessy, CA},
doi = {10.1016/j.jmoneco.2016.09.001},
journal = {Journal of Monetary Economics},
pages = {1--16},
title = {Government as borrower of first resort},
url = {http://dx.doi.org/10.1016/j.jmoneco.2016.09.001},
volume = {84},
year = {2016}
}
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RIS format (EndNote, RefMan)

TY  - JOUR
AB  - We examine optimal provision of riskless government bonds under asymmetric information andsafe asset scarcity. Paradoxically, corporations have incentives to issue junk debt precisely whenintrinsic demand for safe debt is high since uninformed investors then migrate to risky overheateddebt markets. Uninformed demand stimulates informed speculation which drives junk debt pricescloser to fundamentals, encouraging pooling at high leverage. Acting as borrower of Örst resort,the government can issue safe bonds which siphon o§ uninformed demand for risky corporatedebt and reduce socially wasteful informed speculation. Thus, government bonds either eliminatepooling at high leverage or improve risk sharing in such equilibria. The optimal quantity ofgovernment bonds is increasing in intrinsic demand for safe assets and non-monotonic in marginalQ.
AU  - Chemla,GH
AU  - Hennessy,CA
DO  - 10.1016/j.jmoneco.2016.09.001
EP  - 16
PY  - 2016///
SN  - 0304-3932
SP  - 1
TI  - Government as borrower of first resort
T2  - Journal of Monetary Economics
UR  - http://dx.doi.org/10.1016/j.jmoneco.2016.09.001
UR  - http://hdl.handle.net/10044/1/41706
VL  - 84
ER  -
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