The Term Structure of Interest Rates and the Public Debt Issuance Policy: A Note
Valente GiorgioPiga Gustavo
CEIS Research Paper
We estimate, using a previously unexploited set of data for the Italian public debt, quarterly yield curves over the period 1970-1996 to test the main implications of the expectations hypothesis theory (EH). Our empirical results show that short-term interest rates move according to the prediction of the EH, though the same cannot be found for long-term interest rates. In addition, using a probit model, we investigate the public debt issuance policy. We find and interpret a significant relationship between the slope of the yield curve and the probability of an increase in the aggregate duration of the outstanding debt.
Keywords: Term Structure of Interest Rates, Expectations Hypothesis, Public Debt Management
JEL codes: H63, E44, E58, E61
Date: Friday, April 30, 2004
Revision Date: Friday, April 30, 2004