{"title":"The Commitment Benefit of Consols in Government Debt Management","authors":"Davide Debortoli, Ricardo Nunes, P. Yared","doi":"10.1257/aeri.20210341","DOIUrl":null,"url":null,"abstract":"We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government’s current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices—which impact future policy—feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs. (JEL E62, G12, H61, H63)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.1000,"publicationDate":"2022-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"American Economic Review-Insights","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1257/aeri.20210341","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 1
Abstract
We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government’s current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices—which impact future policy—feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs. (JEL E62, G12, H61, H63)
期刊介绍:
The journal American Economic Review: Insights (AER: Insights) is a publication that caters to a wide audience interested in economics. It shares the same standards of quality and significance as the American Economic Review (AER) but focuses specifically on papers that offer important insights communicated concisely. AER: Insights releases four issues annually, covering a diverse range of topics in economics.