Public Debt Managers' Behaviour Interactions with Macro Policies

We investigate the evolution of public debt management, the policy behaviour of debt managers, and the interaction of debt management with financial stability and monetary policy. The main focus is on the euro area. Empirical estimations of a debt management reaction function indicate that the share of short term debt (i) responds to the level of interest rates, in line with the emphasis on cost minimisation ; and (ii) has been increasing due to the economic crisis. The increase in short term debt in the euro area implies higher refinancing risks and a stronger interaction of public debt management with financial stability and monetary policy. Policy recommendations focus on the need for transparency on the use of derivatives and prudent debt management that does not respond to monetary policy.