Imperfect Government Insurance and Treasury Securities Markets

Oscar Valencia ()

No 2814, Archivos de Economía from Departamento Nacional de Planeación

Abstract: One important financial source for any government is the treasury market. Although a full government control over the interest rate is desirable, microeconomic-strategic behavior in the treasury securities often lead to collusive and precautionary agent behavior affecting government revenues. This paper shows that this behavior has not only consequences over the government income but also over the implementation of the optimal fiscal policy. Two main results are obtained: First, when the government uses uniform auction, a Ramsey policy can be implemented given that agents face a clearing price vector. Second, when the government uses a discriminatory auction format, the Ramsey outcome is not achievable because the optimal value of debt is state dependent. According to this, government losses full control over the interest rate and therefore over the optimal structure of public debt.

Keywords: Optimal; public; debt; and; Treasury; Auctions (search for similar items in EconPapers)
JEL-codes: E62 H31 O15 (search for similar items in EconPapers)
Pages: 20
Date: 2006-12-06
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Persistent link: https://EconPapers.repec.org/RePEc:col:000118:002814

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