Dataset Information

The maturity of sovereign debt issuance in the euro area.

ABSTRACT: 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.

SUBMITTER: Beetsma R

PROVIDER: S-EPMC7521257 | biostudies-literature | 2021 Feb

REPOSITORIES: biostudies-literature

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The maturity of sovereign debt issuance in the euro area.

Beetsma Roel R Giuliodori Massimo M Hanson Jesper J de Jong Frank F

Journal of international money and finance 20200928

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-r ...[more]

PMID: 33012939

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Project description:Over the last decades, both advanced and emerging economies have experienced a striking increase in the intra-financial activity across different asset classes and increasingly complex contract types, leading to a far more complex financial system. Until the 2007-2008 crisis, the increased financial intensity and complexity was believed beneficial in making the financial system more resilient and less vulnerable to shocks. However, in 2007-2008, the advanced economies suffered the biggest financial crisis since the 1930s, followed by a severe post-crisis recession, questioning the adequacy of traditional tools in predicting, explaining, and responding to periods of financial distress. In particular, the effect of complex interconnections among financial actors on financial stability has been widely acknowledged. A recent debate focused on the effects of unconventional policies aimed at achieving both price and financial stability. Among these unconventional policies, Quantitative Easing (QE, i.e., the large-scale asset purchase programme conducted by a central bank upon the creation of new money) has been recently implemented by the European Central Bank (ECB). In this context, two questions deserve more attention in the literature. First, to what extent, the resources provided to the banking system through QE are transmitted to the real economy. Second, to what extent, the QE may also alter the pattern of intra-financial exposures and what are the implications in terms of financial stability. Here, we address these two questions by developing a methodology to map the multilayer macro-network of financial exposures among institutional sectors across financial instruments (i.e., loans and deposits, debt securities, and equity), and we illustrate our approach on recently available data. We then test the effect of the implementation of ECB's QE on the time evolution of the financial linkages in the multilayer macro-network of the euro area, as well as the effect on macroeconomic variables, such as consumption, investment, unemployment, growth, and inflation.

Dataset Information

The maturity of sovereign debt issuance in the euro area.

Publications

The maturity of sovereign debt issuance in the euro area.

Similar Datasets

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