IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v131y2024ics0264999323003735.html
   My bibliography  Save this article

Public debt management announcements: A welfare-theoretic analysis

Author

Listed:
  • Dentler, Alexander
  • Rossi, Enzo

Abstract

Before an auction, public debt managers (DMs) announce the number of bonds to be sold to primary dealers (PDs); however, the empirical evidence suggests that when “beat-the-market” opportunities arise, more bonds than announced are auctioned. A micro foundation for this result resides in PDs’ sale of bonds to uninformed traders, thereby extracting information rents. These rents give rise to two counteracting effects. On the one hand, they create an auction premium that motivates DMs to overissue. On the other hand, they motivate traders to learn the bond value, which increases market expertise, mitigating the auction premium and issuance bias. A credible announcement policy raises welfare by increasing the auction premium, depressing the issuance bias, and reducing traders’ need to invest in market expertise.

Suggested Citation

  • Dentler, Alexander & Rossi, Enzo, 2024. "Public debt management announcements: A welfare-theoretic analysis," Economic Modelling, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323003735
    DOI: 10.1016/j.econmod.2023.106561
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999323003735
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2023.106561?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Public debt management; Announcements; Sovereign debt markets; Treasury auctions; State-inconsistent policy; Market expertise;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323003735. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.