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Public-Debt Financing in the case of External Debt

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  • Gianluca Cafiso
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    Abstract

    The objective of this paper is to assess whether non-residents’ holdings of a country’s debt make a difference for debt stabilization, where non-residents’ holdings are considered external debt according to a Balance of Payments perspective. The analysis is empirical and considers the case of Italy, one of the world’s largest debt issuer. We detect two possible channels through which external debt might alter the conditions for debt stabilization. Among these, we focus on the Interest Rate Determination in the primary market of Government Bonds. Our results point out the irrelevance of the investors base for debt stabilization.

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    Bibliographic Info

    Paper provided by CEPII research center in its series Working Papers with number 2013-37.

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    Date of creation: Nov 2013
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    Handle: RePEc:cii:cepidt:2013-37

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    Related research

    Keywords: External Debt; Auction Redemption Yield; Debt Stabilization; Vector Auto Regression; Regime Switch;

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    1. Beltran, Daniel O. & Kretchmer, Maxwell & Marquez, Jaime & Thomas, Charles P., 2013. "Foreign holdings of U.S. Treasuries and U.S. Treasury yields," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1120-1143.
    2. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers 7661, C.E.P.R. Discussion Papers.
    3. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    4. Silvia Merler & Jean Pisani-Ferry, 2012. "Who's afraid of sovereign bonds?," Policy Contributions 695, Bruegel.
    5. Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden stops in the euro area," Policy Contributions 718, Bruegel.
    6. Serkan Arslanalp & Takahiro Tsuda, 2012. "Tracking Global Demand for Advanced Economy Sovereign Debt," IMF Working Papers 12/284, International Monetary Fund.
    7. Gros, Daniel & Alcidi, Cinzia, 2011. "Adjustment Difficulties and Debt Overhangs in the Eurozone Periphery," CEPS Papers 5525, Centre for European Policy Studies.
    8. Jochen R. Andritzky, 2012. "Government Bonds and their Investors," IMF Working Papers 12/158, International Monetary Fund.
    9. Craig Burrnside, 2005. "Fiscal Sustainability in Theory and Practice : A Handbook," World Bank Publications, The World Bank, number 7495, August.
    10. Gros, Daniel, 2013. "Banking Union with a Sovereign Virus: The self-serving regulatory treatment of sovereign debt in the euro area," CEPS Papers 7904, Centre for European Policy Studies.
    11. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
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