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How Is the Debt Managed? Learning from Fiscal Stabilizations

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  • Missale, Alessandro
  • Giavazzi, Francesco
  • Benigno, Pierpaolo

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. Copyright 2002 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 104 (2002)
Issue (Month): 3 (September)
Pages: 443-69

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Handle: RePEc:bla:scandj:v:104:y:2002:i:3:p:443-69

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Cited by:
  1. Bank for International Settlements, 2011. "Interactions of sovereign debt management with monetary conditions and financial stability," CGFS Papers, Bank for International Settlements, number 42.
  2. Sieg, Gernot & Stegemann, Ulrike, 2009. "Strategic debt management within the stability and growth pact," Economics Department Working Paper Series 5, Technische Universität Braunschweig, Economics Department.
  3. Roberto Rigobon & Marcio Garcia, 2004. "A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an application to Brazilian data," Econometric Society 2004 Latin American Meetings 24, Econometric Society.
  4. Begona Dominguez Manzano, 2005. "Reputation in a Model with a Limited Debt Structure," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 600-622, July.
  5. Márcio Gomes Pinto Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an Application to Brazilian Data," Textos para discussão 484, Department of Economics PUC-Rio (Brazil).

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