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Public Debt Managers Behaviour: Interactions with Macro Policies

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  • Lex Hoogduin
  • Bahar �zt�rk
  • Peter Wierts
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    Abstract

    We investigate the evolution of public debt management, the policy behaviour of debt managers, and the impact of debt management on financial stability and monetary policy.The focus is on the euro area. Empirical estimations of a debt management reaction function indicate that the share of short term debt ( i ) responds to the yield curve or the level of interest rates, in line with the objective of cost minimisation; and ( ii ) has been increasing especially since the onset of the economic crisis. The increase in short term debt brings about higher refinancing risks and strengthens the interaction of public debt management with financial stability and monetary policy. The sharp increase in cross border ownership of public debt since the adoption of the euro further amplifies potential spill-over effects. Policy recommendations focus on the need for transparency on the use of derivatives and prudent debt management that reflects broader macroeconomic considerations.

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    File URL: http://www.dnb.nl/binaries/273%20-%20Public%20Debt_tcm46-245128.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 273.

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    Date of creation: Dec 2010
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    Handle: RePEc:dnb:dnbwpp:273

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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, March.

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