Public Confidence and Debt Management: A Model and A Case Study of Italy
AbstractHigh 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. In the contrary, a long and evenly distributed maturity structure may reduce such a risk. We consider the recent Italian experience from this perspective. In particular we ask whether recent developments in the market for government debt showy signs of unstable public confidence, and of a risk premium.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3135.
Date of creation: Oct 1989
Date of revision:
Publication status: published as R. Dornbusch and M. Draghi, editors. Debt Management and Capital Markets. London: Cambridge University Press, 1990.
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Other versions of this item:
- Alesina, Alberto F & Prati, Alessandro & Tabellini, Guido, 1989. "Public Confidence and Debt Management: A Model and a Case Study of Italy," CEPR Discussion Papers 351, C.E.P.R. Discussion Papers.
- Alesina, A. & Prati, A. & Tabellini, G., 1989. "Public Confidence And Debt Management: A Model And A Case Study Of Italy," Papers, California Los Angeles - Applied Econometrics 5, California Los Angeles - Applied Econometrics.
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