GOVERNMENT DEBT MANAGEMENT

This paper discusses the principles that justify activism of governmen ts in the management of public debt. It starts from a review of the ec onomics literature, which has produced especially in recent years, a n umber-of important propositions on the desirability of government inte rventionism, either for the purpose of filling information gaps or to help solve dynamic inconsistency problems. It then considers a number of practical arguments for government activism, stemming from the deve lopment of capital markets, and the need to keep up with them. The pap er argues that government activism in debt management is much less war ranted than the current economic literature or market practices might lead us to believe. The fundamental reason is that governments are not a private actor in the market, and so their optimization problem is r adically different from that of other market participants.