Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Introduction
- 2 The efficient design of public debt
- 3 Indexation and maturity of government bonds: an exploratory model
- 4 Public confidence and debt management: a model and a case study of Italy
- 5 Confidence crises and public debt management
- 6 Funding crises in the aftermath of World War I
- 7 The capital levy in theory and practice
- 8 Episodes in the public debt history of the United States
- 9 The Italian national debt conversion of 1906
- 10 Fear of deficit financing – is it rational?
- 11 Government domestic debt and the risk of default: a political–economic model of the strategic role of debt
- Index
5 - Confidence crises and public debt management
Published online by Cambridge University Press: 05 July 2011
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Introduction
- 2 The efficient design of public debt
- 3 Indexation and maturity of government bonds: an exploratory model
- 4 Public confidence and debt management: a model and a case study of Italy
- 5 Confidence crises and public debt management
- 6 Funding crises in the aftermath of World War I
- 7 The capital levy in theory and practice
- 8 Episodes in the public debt history of the United States
- 9 The Italian national debt conversion of 1906
- 10 Fear of deficit financing – is it rational?
- 11 Government domestic debt and the risk of default: a political–economic model of the strategic role of debt
- Index
Summary
Introduction
What maturity structure should the Treasury choose for public debt? When is it advisable to issue indexed bonds? And, in general, is there an ‘optimal menu’ of debt instruments to be issued by governments? These questions reflect everyday concerns of Central Bankers and Treasury Ministers. Still, until lately economists have provided little help in answering them. The last systematic treatment of the choice of the maturity structure dates back to Tobin's (1963) essay on debt management. Although more work has been done on the choice of debt instruments (chiefly on indexed bonds), Fischer (1983) still concluded that ‘there is as yet no satisfactory theory of what types of assets governments should issue’ (p. 243).
Recently, however, research interest in this area has been revived by the game-theoretic view of the interaction between government and private sector. The insight is that debt-management issues – such as the choice of maturity structure or the decision on debt indexation – can be seen as a way of altering the set of incentives faced by the government and thus the strategies that the private sector expects the government to play.
For instance, Lucas and Stokey (1983) and Persson et al. (1984, 1987) have shown that a government can choose the maturity structure of debt so as to tie the hands of its successors, eliminating any future incentive to depart from the policy it has optimally chosen (i.e. ensuring time-consistency).
- Type
- Chapter
- Information
- Public Debt ManagementTheory and History, pp. 125 - 143Publisher: Cambridge University PressPrint publication year: 1990
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