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We study the interaction between sovereign risk and aggregate demand. We obtain two main results. First, the aggregate demand channel creates a trade-off between the recessionary impact of fiscal consolidation and the risk of a future sovereign debt crisis. Risk aversion has a large impact on output losses and on welfare. Second, we find that savers and borrowers disagree about the optimal path of sovereign deleveraging. The sovereign risk channel can therefore explain some of the rise in political disagreement about fiscal policy. We use a calibrated version of the model to shed light on sovereign deleveraging in the Eurozone. [ABSTRACT FROM AUTHOR]

We study the design of interventions to stabilize financial markets plagued by adverse selection. Our contribution is to analyze the information revealed by participation decisions. Taking part in a government program carries a stigma, and outside options are mechanism dependent. We show that the efficiency of an intervention can be assessed by its impact on the market interest rate. The presence of an outside market determines the nature of optimal interventions and the choice of financial instruments (debt guarantees in our model), but it does not affect implementation costs. (JEL D82, D86, G01, G20, G31) [ABSTRACT FROM AUTHOR]

The article presents a commentary on the paper about the effect of large-scale asset purchases (LSAP) by the U.S. Federal Reserve for fixed-income assets. One of the authors stresses that the writers of the paper carefully analyzes the LSAP announcements. Another author emphasizes that the paper shows why segmented financial markets matter for monetary policy. A third author says that he agrees with the paper's claim that it is difficult to interpret bond yield movement.

I propose an implementation of the q -theory of investment using bond prices instead of equity prices. Credit risk makes corporate bond prices sensitive to future asset values, and q can be inferred from bond prices. With aggregate U.S. data, the bond market's q fits the investment equation six times better than the usual measure of q, it drives out cash flows, and it reduces the implied adjustment costs by more than an order of magnitude. Theoretical interpretations for these results are discussed. [ABSTRACT FROM AUTHOR]

The article focuses on the effect of financial bailout in the financial industry of the U.S. It states that the decision of government interventions to bailout financial industries marks the long-run of economic stagnation. It notes that the bailout plan results to job cuts in General Motors Corp. (GM) and debtor-in-possession (DIP) market. The policy recommendations and principles are also provided.