Optimal Debt Management with a Stability and Growth Pact
AbstractThe "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 InfoIf 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.
Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 166.
Date of creation:
Date of revision:
Contact details of provider:
Postal: via Rontgen, 1 - 20136 Milano (Italy)
Web page: http://www.igier.unibocconi.it/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-06-05 (All new papers)
- NEP-DEV-2000-06-05 (Development)
- NEP-IFN-2000-06-05 (International Finance)
- NEP-PUB-2000-06-05 (Public Finance)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Francesco Giavazzi & Alessandro Missale, 2004.
"Public Debt Management in Brazil,"
NBER Working Papers
10394, National Bureau of Economic Research, Inc.
- Alessandro Missale & Francesco Giavazzi, 2003. "Public Debt Management in Brazil," Development Working Papers 178, Centro Studi Luca d\'Agliano, University of Milano.
- Giavazzi, Francesco & Missale, Alessandro, 2004. "Public Debt Management in Brazil," CEPR Discussion Papers 4293, C.E.P.R. Discussion Papers.
- Artis, Michael J & Buti, Marco, 2000.
""Close to Balance or in Surplus": A Policy Maker's Guide to the Implementation of the Stability and Growth Pact,"
CEPR Discussion Papers
2515, C.E.P.R. Discussion Papers.
- 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," Journal of Common Market Studies, Wiley Blackwell, vol. 38(4), pages 563-591, November.
- 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 28, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Giorgio Basevi & Lorenzo Pecchi & Gustavo Piga, 2005. "Parallel Monies, Parallel Debt: Lessons from the EMU and Options for the New EU," CEIS Research Paper 68, Tor Vergata University, CEIS.
- Sieg, Gernot & Stegemann, Ulrike, 2009. "Strategic debt management within the stability and growth pact," Economics Department Working Paper Series 5, Technische Universität Braunschweig, Economics Department.
- Zorica Raspudic Golomejic, 2007. "Coordination of Public Debt Management and Running Monetary Policy in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 31(2), pages 153-183.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.