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Is the supply of long-term debt independent of the term premia? Evidence from Portugal

Antonio Afonso and Manish Singh ()

No 2016/11, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: An important assumption in the statistical analysis of the nancial market effects of the central bank's large scale asset purchase program is that the `long-term debt stock variables were exogenous to term premia'. We test this assumption for a small open economy in a currency union over the period 2000M3 to 2015M10, via the determinants of shortterm financing relative to long-term nancing. Empirical estimations indicate that the maturity composition of debt does not respond to the level of interest rate or to the term structure. These ndings suggest a lower adherence to the cost minimization mandate of debt management. However, we nd that volatility and relative market size respectively decrease and increase short-term financing relative to long-term nancing, while it decreases with an increase in government indebtedness. Key Words : sovereign debt management, long-term interest rate, portfolio balance channel, Bank of Portugal

JEL-codes: E43 E52 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-mac
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More papers in Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa Department of Economics, ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL.
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