Leonardo Bartolini

Treasury Bill Auctions: Issues and Uses

We review the main issues that arise in the design of treasury bill auctions and survey the relevant empirical literature. We also provide a detailed description of the actual design of these auctions in a sample of 42 industrial and developing countries.

Designing Effective Auctions for Treasury Securities

Most discussions of treasury auction design focus on the choice between two methods for issuing securities--uniform-price or discriminatory auctions. Although auction theory and much recent research appear to favor the uniform-price method, most countries conduct their treasury auctions using the discriminatory format. What are the main issues underlying the debate over effective auction design?

Target Zones and Forward Rates In a Model With Repeated Realignments

This paper studies the implications of the imperfect credibility of an exchange rate target zone on the terra structure of forward premia. The relationship between spot and forward exchange rates of different maturities reflects the possibility of repeated realignments of the exchange rate band. The credibility of the commitment to the target zone implicit in forward market data can be extracted by estimating the model. Application to French/German data indicates that the model is capable of matching observed patterns of interest rate differentials during the EMS, while yielding estimates of the credibility parameters that accord with the experience of the FF/DM exchange rate during the 1980s.

Government Ponzi games and the sustainability of public deficits under uncertainty

Abstract This paper reconsiders the conditions under which a government may engage in debt roll-over schemes by financing interest payments through the issue of new debt. Output growth rates in excess of interest rates on government debt have traditionally been considered grounds for sustaining such schemes. A government may avoid debt repayment, or even run a primary deficit forever, and yet maintain a bounded debt-to-income ratio. Recent research has pointed at the stronger constraints placed on government behaviour by uncertain output growth. We show that this is not the case when an alternative criterion for solvency is used, namely that the debt-to-income ratio converges almost surely in the long run. In this case, the government is solvent when the asymptotic growth rate of the economy exceeds the asymptotic interest rate on debt, a natural extension of a familiar criterion in a deterministic environment. Convergence to the long-run outcome may, however, be a slow process. For realistic parameter values, long-run-stable fiscal plans may resemble unsustainable plans over long horizons. This circumstance may explain the observed poor performance of debt ratios as indicators of fiscal sustainability.

An Analysis of the Process of Capital Liberalization in Italy

Beginning in 1985 Italy embarked on a path of progressive removal of its system of controls on portfolio investment, a process formally completed with the abolition of all remaining restrictions in 1990. In this paper we review this policy of capital liberalization and integrate the analysis with an examination of the process of stabilization of the lira exchange rate in the 1980s. Various indicators of capital controls’ effectiveness and target zone credibility are used to identify the temporal relations among capital liberalization, exchange rate stabilization and capital flows.

Government Ponzi Games and Debt Dynamics Under Uncertainty

We investigate the conditions for sustainability of debt roll-over schemes under uncertainty. In contrast with the requirements identified in recent research, we show that a necessary and sufficient condition for sustainability of such schemes is that the asymptotic interest rate on government debt be lower than the asymptotic growth rate of the economy, a natural extension of a familiar criterion in a deterministic framework. However, we also show that for realistic parameter values, Ponzi games that are sustainable in the long run may display explosive patterns over relatively long horizons. This may explain why governments may be reluctant to play Ponzi games even when they are feasible in the long run.