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SUMMARY:Union Debt Management - Rigas Oikonomou (Universite Catholique de 
 Louvain)
DTSTART:20190613T113000Z
DTEND:20190613T123000Z
UID:TALK110278@talks.cam.ac.uk
CONTACT:CERF/CF Admin
DESCRIPTION:We study the role of government debt maturity in currency unio
 ns to identify whether debt\nmanagement can help governments hedge their b
 udgets against spending shocks. We first use\na novel and detailed dataset
  of debt portfolios of five Euro Area countries to run a battery\nof VARs\
 , estimating the responses of holding period returns to fiscal shocks. We 
 find that\ngovernment portfolios\, which in our sample comprise mainly of 
 nominal assets\, have not been\neffective in absorbing idiosyncratic fisca
 l risks\, whereas they have been very effective in absorbing\naggregate ri
 sks. To shed light on this finding\, as well as to investigate what types 
 of debt are\noptimal in a currency area in the presence of both aggregate 
 and idiosyncratic shocks\, we\nsetup a formal model of optimal debt manage
 ment with two countries\, benevolent governments\nand distortionary taxes.
  Our key finding is that governments should focus on issuing inflation\nin
 dexed long term debt since this allows them to take full advantage of fisc
 al hedging.\n\nWhen we look at the data we find a stark increase in the is
 suance of real long term debt since\nthe beginning of the Euro in many of 
 the countries in our sample\, which our model explains as\nan optimal resp
 onse of governments to the introduction of the common currency.\n
LOCATION:Room W4.03 Cambridge Judge Business School
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