Public-Debt Financing in the case of External Debt

The objective of this paper is to assess whether non-residents’ holdings of a country’s debt make adifference for debt stabilization, where non-residents’ holdings are considered external debt according to aBalance of Payments perspective. The analysis is empirical and considers the case of Italy, one of the world’slargest debt issuer. We detect two possible channels through which external debt might alter the conditionsfor debt stabilization. Among these, we focus on the Interest Rate Determination in the primary market ofGovernment Bonds. Our results point out the irrelevance of the investors base for debt stabilization.