The Maturity of Sovereign Debt Issuance in the Euro Area☆
| Autor: | Jesper Hanson, Roel Beetsma, Frank de Jong, Massimo Giuliodori |
|---|---|
| Přispěvatelé: | Research Group: Finance, Department of Finance |
| Jazyk: | angličtina |
| Rok vydání: | 2020 |
| Předmět: |
Economics and Econometrics
050208 finance Credit default swap Risk aversion media_common.quotation_subject liquidity services of short debt 05 social sciences risk aversion Monetary economics Maturity (finance) Article Market liquidity expected repayment probability yield curve Debt 0502 economics and business Economics Variance decomposition of forecast errors euro-area public debt auctions Yield curve Maturity 050207 economics Preference (economics) Finance media_common |
| Zdroj: | Journal of International Money and Finance Journal of International Money and Finance, 110:102293. ELSEVIER SCI LTD |
| ISSN: | 1873-0639 0261-5606 |
| Popis: | Highlights • We model public debt maturities as a function of preference for liquidity services provided by short-term debt, roll-over risk and price risk. • We construct a dataset on sovereign euro-area debt issues to explain maturity decisions of governments. • Positive shocks to risk aversion, probability of non-repayment and demand for liquidity services increase yield curve level and slope. • Positive shocks to risk aversion, probability of non-repayment and demand for liquidity services reduce average maturity of new debt issues. • A forecast error variance decomposition shows that shocks to the non-repayment probability are quantitatively most important. We use information on new sovereign debt issues in the euro area to explore the drivers behind the debt maturity decisions of governments. We set up a theoretical model for the maturity structure that trades off the preference for liquidity services provided by short-term debt, roll-over risk and price risk. The average debt maturity is negatively related to both the level and the slope of the yield curve. A panel VAR analysis shows that positive shocks to risk aversion, the probability of non-repayment and the demand for the liquidity services of short-term debt all have a positive effect on the yield curve level and slope, and a negative effect on the average maturity of new debt issues. These results are partially in line with our theoretical framework. A forecast error variance decomposition suggests that changes in the probability of non-repayment as captured by the expected default frequency extracted from credit default spreads are the most important source of shocks. |
| Databáze: | OpenAIRE |
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