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Debt Mangement

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Submitted By jayanthika
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Interactions between sovereign debt management and monetary policy under fiscal dominance and financial instability
Hans J Blommestein and Philip Turner1

Serious fiscal vulnerabilities arising from many years of high government/GDP ratios have created new and complex interactions between public debt management and monetary policy. Although their formal mandates have not changed, recent balance sheet policies of many central banks have tended to blur the separation of their policies from fiscal policy. The mandates of debt management offices have usually had a microeconomic focus (viz, minimising longer-term borrowing costs, while limiting refunding risks). Such mandates have usually avoided any explicit macroeconomic policy dimension but some major policy overlaps are latent. What is needed is a policy framework for all official actions that affect the maturity structure of government debt in the hands of the public. This requires more analysis of the macroeconomics of government debt management. A full debate about the allocation of functional responsibilities would have to take account not only of the economics, but also of political and institutional constraints. There are operational advantages in having in place appropriate governance arrangements that serve to forestall short-sighted policies and hold specific institutions accountable for their mandates. Keywords: Monetary policy, central banks, policy design and consistency, policy coordination, debt management, sovereign debt JEL classification: E52, E58, E61, H63


An earlier version of this paper was presented at the ECB’s Public Finance Workshop on “Challenges for Sovereign Debt Management in the EU”, held on 7 October 2011 in Frankfurt, Germany. This was also published in the OECD’s Working Papers on Sovereign Borrowing Public Debt Management. Emails: and...

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