This paper shows how public debt repurchases can be used to reduce the costs of debt service under the hypothesis that the government could be of two types and that there is asymmetric information between the government and the private sector. For example, at the beginning of a fiscal stabilisation a government typically does not enjoy full credibility among investors and high interest rates on long-term bonds may reflect credibility problem rather than term premia. In a two period framework, this paper suggests that buybacks could be used to reduce the risk premia since they can signal government commitment to a previously-announced policy.

Marchesi, S. (2006). Buybacks of domestic debt in public debt management. EUROPEAN JOURNAL OF FINANCE, 12(5), 379-400.

Buybacks of domestic debt in public debt management

MARCHESI, SILVIA
2006

Abstract

This paper shows how public debt repurchases can be used to reduce the costs of debt service under the hypothesis that the government could be of two types and that there is asymmetric information between the government and the private sector. For example, at the beginning of a fiscal stabilisation a government typically does not enjoy full credibility among investors and high interest rates on long-term bonds may reflect credibility problem rather than term premia. In a two period framework, this paper suggests that buybacks could be used to reduce the risk premia since they can signal government commitment to a previously-announced policy.
Articolo in rivista - Articolo scientifico
Asymmetric Information, Signalling, Public Debt Management, Buybacks
English
2006
12
5
379
400
none
Marchesi, S. (2006). Buybacks of domestic debt in public debt management. EUROPEAN JOURNAL OF FINANCE, 12(5), 379-400.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/1700
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