Managing the Public Debt in Fiscal Stabilizations: The Evidence
27 Pages Posted: 13 Nov 1997
Date Written: September 10, 1997
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 between the government and private investors is asymmetric, as is usually the case at the outset of a stabilization attempt when private investors may lack full confidence in the announced budget cuts.
JEL Classification: H63, E63
Suggested Citation: Suggested Citation