Abstact
We study how the autonomy of national Debt Management Offices (DMO) in developed countries affects their credibility with lenders, given the DMO’s privileged information. Using this information, the DMO can adjust the maturity of the auctioned debt opportunistically – maximizing short-term profit at the expense of the lenders, or cooperatively – not maximizing short-term profit, but rather taking lenders’ interests into account, in order to signal its credibility and thus gain long-term benefits. We run Fixed Effects regressions on a unique dataset based on more than 27,500 issues of government debt in 31 mostly OECD countries during 2004-12, and a unique compilation of legal texts defining the authority of DMOs in these countries. We find that autonomy reduces a DMO’s need to signal its credibility to lenders and thus reduces the cost of debt issuance. These results suggest that autonomous DMOs have more credibility with lenders and therefore have less need to signal cooperation (and orego profits) in order to build credibility.
KEYWORDS: Autonomous agencies; Relational contracts; Debt management; Elections; Credibility