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

An important assumption in the statistical analysis of the financial 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 short- term financing relative to long-term financing. Empirical estimations indicate that the maturity composition of debt does not respond to the level of interest rate or to the term structure. These findings suggest a lower adherence to the cost minimization mandate of debt management. However, we find that volatility and relative market size respectively decrease and increase short-term financing relative to long-term financing, while it decreases with an increase in government indebtedness.

The fiscal consequences of deflation : evidence from the golden age of globalization

We study the fiscal consequences of deflation on a panel of 17 economies in the first wave of globalization, between 1870 and 1914. By means of impulse response analyses and panel regressions, we find that a 1 percent fall in the price level leads to an increase in the public debt ratio of about 0.23- 0.32 pp. and accounting for trade openness, monetary policy and the exchange rate raises the absolute value of the coefficient on deflation. Moreover, the public debt ratio increases when deflation is also associated with a period of economic recession. For government revenue, lagged deflation comes out with a statistically significant negative coefficient, while government primary expenditure seems relatively invariant to changes in prices.