How is the Debt Managed? Learning from Fiscal Stabilizations
AbstractThis Paper provides evidence on the behaviour of public debt managers during fiscal stabilizations. Such episodes provide valuable information on the way debt instruments are chosen because they allow the problem of policymakers' expectations of interest rates not generally being observable to be overcome. We find that governments increase the share of fixed-rate long-term debt denominated in the domestic currency, causing the conditional volatility of short-term interest rates to become higher, long-term interest rates to become lower, and the fall in long-term rates, that follows the announcement of the stabilization program, to become stronger. In contrast, conventional measures of the relative cost of issuing long-term debt, such as the long-short interest-rate spread, are not significant. This evidence suggests that debt managers tend to prefer long to short maturity debt because they are concerned with the risk of refinancing at higher than expected interest rates. However, when long-term rates are high relative to their expectations, they issue short maturity debt to minimize borrowing costs.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2655.
Date of creation: Jan 2001
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Other versions of this item:
- Missale, Alessandro & Giavazzi, Francesco & Benigno, Pierpaolo, 2002. " How Is the Debt Managed? Learning from Fiscal Stabilizations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 443-69, September.
- Pierpaolo Benigno & Francesco Giavazzi & Alessandro Missale, . "How is the Debt Managed? Learning from Fiscal Stabilizations," Working Papers 174, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- 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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- Marcio Garcia & Roberto Rigobon, 2004.
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- Bank for International Settlements, 2011. "Interactions of sovereign debt management with monetary conditions and financial stability," CGFS Papers, Bank for International Settlements, number 42, October.
- 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.
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