TY  - JOUR
AU  - Giavazzi,Francesco
AU  - Pagano,Marco
TI  - Confidence Crises and Public Debt Management
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2926
PY  - 1989
Y2  - April 1989
UR  - http://www.nber.org/papers/w2926
L1  - http://www.nber.org/papers/w2926.pdf
N1  - Author contact info:
Francesco Giavazzi
Universita' Bocconi and IGIER
Via Guglielmo Rontgen, 1
Milan 20136
ITALY
Tel: 0039-02-5836-3304
Fax: 0039-02-5836-3302
E-Mail: francesco.giavazzi@unibocconi.it

Marco Pagano
Department of Economics
University of Naples Federico II
Via Cintia, Monte S. Angelo
80126 Napoli,  ITALY
Tel: +390815752508
Fax: +390815752243
E-Mail: mrpagano@tin.it
AB  - Under free capital mobility, confidence crises can result in devaluations even when fixed exchange rates are viable, if fiscal authorities can obtain temporary money financing. During a crisis, domestic interest rates increase reflecting the expected devaluation. Rather than selling debt at punitive rates, fiscal authorities will turn to temporary money financing, leading to equilibria with positive probability of devaluation. These equilibria can be ruled out if the amount of debt maturing during the crisis is sufficiently small- a condition that can be met by reducing the stock of public debt, lengthening its average maturity and/or smoothing the time distribution of maturing issues.
ER  -