Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt

Guibaud, Stéphane; Nosbusch, Yves; Vayanos, Dimitri

doi:10.1093/rfs/hht013

Cited by 62 publications

(27 citation statements)

References 38 publications

(35 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In short, their answers are that DMO's are mainly worried about issuing cheaply, and for this they need to promote bond market stability. This response is broadly consistent with models such as Greenwood and Vayanos (2010), Gorton, Levellen and Metrick (2012), Guibaud et al (2013), Greenwood et al (2015) and Quinn and Roberds (2017) which emphasise investors being attracted to liquid and safe assets where bonds function as money or investors having a strong preference for particular habitats. In this environment large repurchases or sales are costly to manage and may disrupt the market 9 .…”

Section: Us Government Debt Managementsupporting

confidence: 85%

Government Debt Management: The Long and the Short of It

Faraglia

Marcet

Oikonomou

et al. 2018

The Review of Economic Studies

View full text Add to dashboard Cite

Standard optimal Debt Management (DM) models prescribe a dominant role for long bonds and advocate against issuing short bonds. They require very large positions in order to complete markets and assume each period that governments repurchase all outstanding bonds and reissue (r/r) new ones. These features of DM are inconsistent with U.S. data. We introduce incomplete markets via small transaction costs which serves to make optimal DM more closely resemble the data : r/r are negligible, short bond issuance substantial and persistent and short and long bonds positively co-vary. Intuitively, long bonds help smooth taxes over states and short bonds over time. Solving incomplete market models with multiple assets is challenging so a further contribution of this article is introducing a novel computational method to find global solutions.

show abstract

Section: Us Government Debt Managementsupporting

confidence: 85%

Government Debt Management: The Long and the Short of It

Faraglia

Marcet

Oikonomou

et al. 2018

The Review of Economic Studies

View full text Add to dashboard Cite

show abstract

“…See also Calvo and Guidotti (), Barro (), Benigno and Woodford (), and Lustig, Sleet, and Yeltekin (). More closely related to our work is Guibaud, Nosbusch, and Vayanos (), who propose a clientele‐based theory in which the optimal debt maturity structure helps overcome imperfections in intergenerational risk‐sharing.…”

mentioning

confidence: 88%

A Comparative‐Advantage Approach to Government Debt Maturity

Greenwood¹,

Hanson²,

Stein

2015

The Journal of Finance

201

View full text Add to dashboard Cite

We study optimal government debt maturity in a model where investors derive monetary services from holding riskless short-term securities. In a setting where the government is the only issuer of such riskless paper, it trades off the monetary premium associated with short-term debt against the refinancing risk implied by the need to roll over its debt more often. We extend the model to allow private financial intermediaries to compete with the government in the provision of short-term money-like claims. We argue that, if there are negative externalities associated with private money creation, the government should tilt its issuance more toward short maturities, thereby partially crowding out the private sector's use of short-term debt. * Greenwood and Hanson are with Harvard Business School. Stein is with Harvard University. We thank

show abstract

“…Lustig et al (2008) explore the optimal maturity structure of government debt in an economy with nominal rigidities. Guibaud et al (2013) explore optimal maturity structure in a preferred habitat model.…”

Section: Related Literaturementioning

confidence: 99%

Optimal Time-Consistent Government Debt Maturity

Debortoli¹,

Nunes²,

Yared³

2014

View full text Add to dashboard Cite

This paper develops a model of optimal government debt maturity in which the government cannot issue state-contingent bonds and cannot commit to fiscal policy. If the government can perfectly commit, it fully insulates the economy against government spending shocks by purchasing short-term assets and issuing long-term debt. These positions are quantitatively very large relative to GDP and do not need to be actively managed by the government. Our main result is that these conclusions are not robust to the introduction of lack of commitment. Under lack of commitment, large and tilted positions are very expensive to finance ex-ante since they exacerbate the problem of lack of commitment ex-post. In contrast, a flat maturity structure minimizes the cost of lack of commitment, though it also limits insurance and increases the volatility of fiscal policy distortions. We show that the optimal time-consistent maturity structure is nearly flat because reducing average borrowing costs is quantitatively more important for welfare than reducing fiscal policy volatility. Thus, under lack of commitment, the government actively manages its debt positions and can approximate optimal policy by confining its debt instruments to consols.

show abstract

Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt

Cited by 62 publications

References 38 publications

Government Debt Management: The Long and the Short of It

Government Debt Management: The Long and the Short of It

A Comparative‐Advantage Approach to Government Debt Maturity

Optimal Time-Consistent Government Debt Maturity

Contact Info

Product

Resources

About