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The Term Structure of Interest Rates and the Public Debt Issuance Policy: A Note

  • Gustavo Piga

    ()

    (University of Rome II)

  • Giorgio Valente

    ()

    (The Chinese University of Hong Kong)

We estimate, using a previously unexploited set of data for the Italian public debt, quarterly yield curves over the period 1970-1996 to test the main implications of the expectations hypothesis theory (EH). Our empirical results show that short-term interest rates move according to the prediction of the EH, though the same cannot be found for long-term interest rates. In addition, using a probit model, we investigate the public debt issuance policy. We find and interpret a significant relationship between the slope of the yield curve and the probability of an increase in the aggregate duration of the outstanding debt.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 49.

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Length: 12
Date of creation: 30 Apr 2004
Date of revision:
Handle: RePEc:rtv:ceisrp:49
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