Show simple item record

dc.contributor.authorEquiza-Goni, J.
dc.contributor.authorFaraglia, E.
dc.contributor.authorOikonomou, R.
dc.date.accessioned2019-03-05T15:54:16Z
dc.date.available2019-03-05T15:54:16Z
dc.date.issued2019-02-12
dc.identifier.otherCWPE1890
dc.identifier.urihttps://www.repository.cam.ac.uk/handle/1810/290230
dc.description.abstractWe study the role of government debt maturity in currency unions to identify whether debt management can help governments hedge their budgets against spending shocks. We first use a novel and detailed dataset of debt portfolios of five Euro Area countries to run a battery of VARs, estimating the responses of holding period returns to fiscal shocks. We find that government portfolios, which in our sample comprise mainly of nominal assets, have not been effective in absorbing idiosyncratic fiscal risks, whereas they have been very effective in absorbing aggregate risks. To shed light on this finding, as well as to investigate what types of debt are optimal in a currency area in the presence of both aggregate and idiosyncratic shocks, we setup a formal model of optimal debt management with two countries, benevolent governments and distortionary taxes. Our key finding is that governments should focus on issuing inflation indexed long term debt since this allows them to take full advantage of fiscal hedging. When we look at the data we find a stark increase in the issuance of real long term debt since the beginning of the Euro in many of the countries in our sample, which our model explains as an optimal response of governments to the introduction of the common currency.
dc.publisherFaculty of Economics
dc.relation.ispartofseriesCambridge Working Papers in Economics
dc.rightsAll Rights Reserveden
dc.rights.urihttps://www.rioxx.net/licenses/all-rights-reserved/en
dc.subjectDebt Management
dc.subjectFiscal Policy
dc.subjectGovernment Debt
dc.subjectMaturity Structure
dc.subjectTax Smoothing
dc.titleUnion Debt Management
dc.typeWorking Paper
dc.identifier.doi10.17863/CAM.37457


Files in this item

Thumbnail

This item appears in the following Collection(s)

Show simple item record