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Confidence Crises and Public Debt Management

Under free capital mobility, confidence crises can result in devaluations even when fixed exchange rates are viable, if fiscal authorities can obtain temporary money financing. During a crisis, domestic interest rates increase reflecting the expected devaluation. Rather than selling debt at punitive rates, fiscal authorities will turn to temporary money financing, leading to equilibria with…


Bank monitoring and the pricing of corporate public debt

We examine whether the existence of a bank/Þrm relationship lowers the cost of public debt Þnancing. Using a sample of Þrst public straight debt o¤ers, we test the crossmonitoring e¤ect of bank debt and DiamondÕs (1991, Journal of Political Economy, 99, 689Ð721) reputation-building argument. We Þnd that the existence of bank debt lowers the at-issue…