How is the Debt Managed? Learning from Fiscal Stabilizations

Benigno, Pierpaolo and Giavazzi, Francesco and Missale, Alessandro (2000) How is the Debt Managed? Learning from Fiscal Stabilizations. [Working Paper]. p. 26. IGIER Working Papers (174).

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This paper provides evidence on the behavior of public debt managers during fiscal stabilizations. Such episodes provide valuable information on the way debt instruments are chosen because they allow to overcome the problem that policymakers' expectations of interest rates are generally not observable. We find that governments increase the share of fixed-rate long-term debt denominated in the domestic currency the higher is the conditional volatility of short-term interest rates, the lower are long-term interest rates, and the stronger is the fall in long-term rates that follows the announcement of the stabilization program. By contrast, conventional measures of the relative cost of issuing long-term debt, such as the long-short interest-rate spread, are not significant. This evidence suggests that debt managers tend to prefer long to short maturity debt because they are concerned about the risk of refinancing at higher than expected interest rates. However, when long-term rates are high relative to their expectations, they issue short maturity debt to minimize borrowing costs.

Item Type: Report / Paper (Working Paper)
Research documents and activity classification: Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions: Department of Business and Management
Additional Information: This paper has been published as Benigno, P., Giavazzi, F. and Missale, A. 2001. 'How is the Debt Managed? Learning from Fiscal Stabilizations'. CEPR Discussion Paper (no. 2655). London, Centre for Economic Policy Research.
Uncontrolled Keywords: Credibility, Debt Maturity, Public Debt Management, Stabilization.
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited by: Maria Teresa Nisticò
Date Deposited: 12 Nov 2010 10:56
Last Modified: 21 Apr 2015 23:13


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