This paper reviews a research workshop that was held by the National Bank of Ukraine (NBU) in November 2018 on the application of DSGE models in central banking. We summarize the discussion of the advantages and drawbacks of DSGE modeling and potential ways to resolve issues and improve the models. Furthermore, this paper provides guidance on using DSGE models for forecasting and policy analysis.
I develop a tractable model to study the optimal debt maturity structure and fiscal policy in an environment with incomplete markets, lack of commitment, and opportunity to default by the government. I show that the Lucas and Stokey (1983) time-consistency result can be extended to environments with an opportunity of outright default. The maturity is used to resolve the time-consistency problem. I show that if both risk-free interest rates and risk premiums can be manipulated, the optimal maturity structure tends to have a decaying profile: The government issues debt at all maturity dates, but the distribution of payments over time is skewed toward the short end. The model allows for numerical characterization of the optimal maturity structure of debt with arbitrarily large number of maturities. Debt maturity data across countries are consistent with model predictions.
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