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Public Confidence And Debt Management: A Model And A Case Study Of Italy

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Author Info

  • ALESINA, A.
  • PRATI, A.
  • TABELLINI, G.

Abstract

High-debt countries may face the risk of self-fulfilling debt crises. If the public expects that in the future the government will be unable to roll over the maturing debt, they may refuse to buy debt today and choose to hold foreign assets. This lack of confidence may then be self-fulfilling. This paper argues that under certain conditions, the occurrence of a confidence crisis is more likely if the average maturity of the debt is short. Conversely, a long and evenly distributed maturity structure may reduce the risk. We consider the recent Italian experience from this perspective. In particular we ask whether recent developments in the market for government debt show signs of unstable public confidence and a risk premium.

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Bibliographic Info

Paper provided by California Los Angeles - Applied Econometrics in its series Papers with number 5.

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Length: 31 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:fth:callaa:5

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Postal: UNIVERSITY OF CALIFORNIA AT LOS ANGELES, DEPARTMENT OF ECONOMICS, PROGRAM IN APPLIED ECONOMETRICS, LOS ANGELES CALIFORNIA 90024 U.S.A.
Phone: (310) 825 1011
Fax: (310) 825 9528
Web page: http://www.econ.ucla.edu/
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Related research

Keywords: debt ; risk;

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References

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  1. Francesco Giavazzi & Marco Pagano, 1989. "Confidence Crises and Public Debt Management," Working Papers 73, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  3. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  4. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  5. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
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