Advanced Search
MyIDEAS: Login to save this paper or follow this series

Optimal Debt Management with a Stability and Growth Pact


Author Info

  • Alessandro Missale


The "Stability and Growth Pact" introduces deficit stabilization as a new interesting objective of debt management. The interest payments on public debt may serve as an important buffer against the budget consequences of cyclical downturns and unexpected deflation. The optimal debt composition depends on the correlations between interest rates, output and inflation. Estimated correlations for the period 1960-1998 and the implied debt compositions provide benchmarks for implications regarding the EMU. The paper explores how relevant correlations between output, inflation and interest rates may have changed with the shift in the monetary policy regime and thus how the debt composition, which stabilizes the deficit, has changed. A longer maturity structure of conventional debt is optimal if the ECB places a lower weight on output stabilization than the national monetary authorities and if EMU member states are hit by asymmetric shocks. Short term conventional debt should instead be issued by countries which experience a relatively higher output and inflation uncertainty and a lower sensitivity of aggregate demand to interest-rate changes. The optimal share of inflation-indexed debt is largest in a strict inflation targeting regime; the lower the weight that the ECB assigns to output stabilization, the more attractive is inflation indexation for deficit stabilization.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 166.

as in new window
Date of creation:
Date of revision:
Handle: RePEc:igi:igierp:166

Contact details of provider:
Postal: via Rontgen, 1 - 20136 Milano (Italy)
Phone: 0039-02-58363301
Fax: 0039-02-58363302
Web page:

Order Information:

Related research


This paper has been announced in the following NEP Reports:


No references listed on IDEAS
You can help add them by filling out this form.


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michael J. Artis & Marco Buti, 2000. "Close to Balance or in Surplus. A Policy Maker’s Guide to the Implementation of the Stability and Growth Pact," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 28, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  2. Michele Manna & Emmanuela Bernardini & Mauro Bufano & Davide Dottori, 2013. "Modelling public debt strategies," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 199, Bank of Italy, Economic Research and International Relations Area.
  3. Udaibir S. Das & Yinqiu Lu & Michael G Papaioannou & Iva Petrova, 2012. "Sovereign Risk and Asset and Liability Management," IMF Working Papers, International Monetary Fund 12/241, International Monetary Fund.
  4. Sieg, Gernot & Stegemann, Ulrike, 2009. "Strategic debt management within the stability and growth pact," Economics Department Working Paper Series, Technische Universität Braunschweig, Economics Department 5, Technische Universität Braunschweig, Economics Department.
  5. Francesco Giavazzi & Alessandro Missale, 2004. "Public Debt Management in Brazil," NBER Working Papers 10394, National Bureau of Economic Research, Inc.
  6. Zorica Raspudic Golomejic, 2007. "Coordination of Public Debt Management and Running Monetary Policy in Croatia," Financial Theory and Practice, Institute of Public Finance, Institute of Public Finance, vol. 31(2), pages 153-183.
  7. Giorgio Basevi & Lorenzo Pecchi & Gustavo Piga, 2005. "Parallel Monies, Parallel Debt: Lessons from the EMU and Options for the New EU," CEIS Research Paper, Tor Vergata University, CEIS 68, Tor Vergata University, CEIS.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:igi:igierp:166. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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