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How is the Debt Managed? Learning from Fiscal Stabilizations

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  • Alessandro Missale
  • Francesco Giavazzi
  • Pierpaolo Benigno

Abstract

This paper examines public debt management during episodes of fiscal stabilization when long–term interest rates are generally higher than governments’ expectations of future rates. We find that governments increase the share of fixed–rate long–term debt denominated in the domestic currency, the higher is the conditional volatility of short–term interest rates, the lower are long–term interest rates, and the stronger is the fall in long–term rates that follows the announcement of the stabilization program. This evidence suggests that governments tend to prefer long to short maturity debt because they are concerned about refinancing risk. However, when long–term rates are high relative to their expectations, they issue short maturity debt to minimize borrowing costs. JEL classification: E63; H63

Suggested Citation

  • Alessandro Missale & Francesco Giavazzi & Pierpaolo Benigno, 2002. "How is the Debt Managed? Learning from Fiscal Stabilizations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 443-469, September.
    • Handle: RePEc:bla:scandj:v:104:y:2002:i:3:p:443-469
    DOI: 10.1111/1467-9442.00296
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    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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