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A Framework for Developing Secondary Markets for Government Securities

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  • Zsófia Ãrvai
  • Geoffrey Heenan
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    Abstract

    This paper consolidates previous work on the development of secondary markets for government securities, and focuses on the sequencing of measures necessary for their development. Six main lessons are identified: (i) a commitment to achieving and maintaining a stable macroeconomic environment, especially prudent fiscal policy, should underpin market development; (ii) a sound and transparent public debt management strategy supports secondary market activity; (iii) a deep and diverse investor base is required; (iv) poor market infrastructure leads to high transaction costs, slow order execution, and excessive operational risk, which all inhibit trading; (v) secondary market growth is facilitated by effective monetary policy implementation; and (vi) reforms should be sequenced to ensure even development of all the structures supporting the secondary market.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/174.

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    Length: 55
    Date of creation: 01 Jul 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/174

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    Related research

    Keywords: Government finance statistics; Public debt; government securities; central bank; monetary policy; securities market; government securities market; securities markets; capital markets; government securities markets; liquid asset; inflation; monetary fund; capital account liberalization; liquidity management; money market; market for government securities; stock exchange; securities settlement; capital inflows; international capital markets; government bonds; reserve requirements; treasury securities; government security; capital market; domestic government securities; monetary instruments; money markets; international capital; issuance of government securities; monetary policy implementation; treasury bonds; securities transactions; indexed bonds; securities accounts; high reserve requirements; demand for government securities; fixed rate bonds; capital market development; holdings of government securities; capital gains; current account balance; long-term government securities; corporate bonds; share of government securities; capital losses; hedge funds; investors in government securities; government securities holdings; brady bonds; capital outflow; derivative markets; government securities auctions; national bank; monetary authorities; securities settlement systems; securities trading; hedging; investor confidence; domestic securities; private capital inflows; securities auctions; capital requirement; bond placements; minimum capital requirement; bond issues; bond issuance; treasury notes; securities traders; capital controls; options markets; capital loss; monetary expansion; foreign securities; long-term interest rates; current account deficits; monetary management; capital account restrictions; speculative attacks; bond funds; liquidity of government securities; indexed securities; monetary frameworks; creditworthy borrowers; capital flows; government bond markets; security markets; new securities; current account deficit; swap transactions; spot market; debt stock; fixed rate securities; short-term government securities; monetary policy operations; domestic borrowing; indexation; management techniques; net capital; private capital; government bond market; debt securities; retail government securities; subsidiaries;

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    1. Robert T. Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
    2. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    3. Vittas, Dimitri, 1998. "Institutional investors and securities markets : which comes first?," Policy Research Working Paper Series 2032, The World Bank.
    4. International Monetary Fund, 2003. "Managing Risks in Financial Market Development," IMF Working Papers 03/116, International Monetary Fund.
    5. Csaba Csávás & Lóránt Varga & Csaba Balogh, 2008. "The forint interest rate swap market and the main drivers of swap spreads," MNB Occasional Papers 2008/64, Magyar Nemzeti Bank (the central bank of Hungary).
    6. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio, 2003. "Government bonds in domestic and foreign currency: the role of macroeconomic and institutional factors," Policy Research Working Paper Series 2986, The World Bank.
    7. Garry J. Schinasi & T. Todd Smith, 1998. "Fixed-Income Markets in the United States, Europe, and Japan-Some Lessons for Emerging Markets," IMF Working Papers 98/173, International Monetary Fund.
    8. George Iden & Marco Arnone, 2003. "Primary Dealers in Government Securities," IMF Working Papers 03/45, International Monetary Fund.
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    Cited by:
    1. Kamal A. El-Wassal, 2013. "The Development of Stock Markets: In Search of a Theory," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 606-624.

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