Fiscal Insurance and Debt Management in OECD Economies

Albert Marcet, Andrew Scott and Elisa Faraglia

No 6539, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Assuming the role of debt management is to provide hedging against fiscal shocks we consider three questions: i) what indicators can be used to assess the performance of debt management? ii) how well have historical debt management policies performed? and iii) how is that performance affected by variations in debt issuance? We consider these questions using OECD data on the market value of government debt between 1970 and 2000. Motivated by both the optimal taxation literature and broad considerations of debt stability we propose a range of performance indicators for debt management. We evaluate these using Monte Carlo analysis and find that those based on the relative persistence of debt perform best. Calculating these measures for OECD data provides only limited evidence that debt management has helped insulate policy against unexpected fiscal shocks. We also find that the degree of fiscal insurance achieved is not well connected to cross country variations in debt issuance patterns. Given the limited volatility observed in the yield curve the relatively small dispersion of debt management practices across countries makes little difference to the realised degree of fiscal insurance.

Keywords: Bond markets; Debt management; Fiscal insurance; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E43 E62 H62 H63 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-ias and nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Fiscal Insurance and Debt Management in OECD Economies (2008)
Journal Article: Fiscal Insurance and Debt Management in OECD Economies (2008)
Working Paper: Fiscal Insurance and Debt Management in OECD Economies (2007)
Working Paper: Fiscal Insurance and Debt Management in OECD Economies (2007)
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