The impact of political institutions on U.S. state bond yields during crises: evidence from the 2008 credit market seizure

Sounman Hong, Daniel Nadler

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study examines how political institutions mediate bond market reactions to severe economic crisis, based on U.S. states’ experience of the 2008 credit market seizure. Following severe fiscal shocks, political institutions assume greater importance in assessing risk characteristics of state bonds. The bond market reacts most strongly to two factors: public sector union strength in a state and the proportion of Democrats in the state legislature. We suggest that the identity of political institutions becomes increasingly important, during periods of economic crises, when credit markets might expect that political systems can no longer delay stabilisations and must deliver policy.

Original languageEnglish
Pages (from-to)77-89
Number of pages13
JournalJournal of Economic Policy Reform
Volume19
Issue number1
DOIs
Publication statusPublished - 2016 Jan 2

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U.S. States
Credit markets
Bond yields
Political institutions
Economic crisis
Bond market
Fiscal shocks
Public sector
Legislatures
Risk characteristics
Proportion
Stabilization
Market reaction
Factors
Political system

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Economics, Econometrics and Finance(all)

Cite this

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The impact of political institutions on U.S. state bond yields during crises : evidence from the 2008 credit market seizure. / Hong, Sounman; Nadler, Daniel.

In: Journal of Economic Policy Reform, Vol. 19, No. 1, 02.01.2016, p. 77-89.

Research output: Contribution to journalArticle

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