Managing the Public Debt in Fiscal Stabilizations: the Evidence

This paper provides evidence on the behavior of public debt managers during fiscal stabilizations in OECD countries over the last two decades. We find that debt maturity tends to lengthen the more credible is the program, the lower is the long-term interest rate and the higher is the volatility of short-term interest rates. We show that this debt issuing strategy is consistent with optimal debt management if information bewteen the government and private investors is asymmetric, as it is usually the case at the outset of a stabilization attempt when private investors may lack full confidence in the announced budget cuts.