How is the Debt Managed? Learning from Fiscal Stabilizations

27 Pages Posted: 4 Jan 2003

See all articles by Alessandro Missale

Alessandro Missale

University of Milan - Department of Business Policy and Economics

Francesco Giavazzi

National Bureau of Economic Research (NBER); University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); Centre for Economic Policy Research (CEPR)

Pierpaolo Benigno

University of Bern - Department of Economics; Einaudi Institute for Economics and Finance (EIEF)

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Abstract

This paper examines public debt management during episodes of fiscal stabilization when long-term interest rates are generally higher than governments' expectations of future rates. 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. This evidence suggests that governments tend to prefer long to short maturity debt because they are concerned about refinancing risk. However, when long-term rates are high relative to their expectations, they issue short maturity debt to minimize borrowing costs.

Suggested Citation

Missale, Alessandro and Giavazzi, Francesco and Giavazzi, Francesco and Benigno, Pierpaolo, How is the Debt Managed? Learning from Fiscal Stabilizations. Available at SSRN: https://ssrn.com/abstract=336857

Alessandro Missale (Contact Author)

University of Milan - Department of Business Policy and Economics ( email )

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I-20122 Milano
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Francesco Giavazzi

National Bureau of Economic Research (NBER)

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University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Pierpaolo Benigno

University of Bern - Department of Economics ( email )

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Bern, CH-3001
Switzerland

Einaudi Institute for Economics and Finance (EIEF) ( email )

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Rome, 00187
Italy

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