Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154023
Authors: 
Jermann, Urban J.
Yue, Vivian Z.
Year of Publication: 
2013
Series/Report no.: 
ECB Working Paper 1590
Abstract: 
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.
Subjects: 
corporate default
debt pricing
Interest rate swaps
risk management
swap position
JEL: 
E44
G12
Document Type: 
Working Paper

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