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Government Asset and Liability Management in an Era of Vanishing Public Debt

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  • Bohn, Henning

Abstract

The paper examines alternative options for managing public debt and public assets in a government balance sheet framework that includes the Treasury, the Federal Reserve, and social security. Even after September 11, U.S. fiscal policy is on a trajectory to accumulate substantial “uncommitted funds.†The paper examines how such funds should be invested. I conclude that high-quality fixed-income securities are the best benchmark and that social security is the most appropriate government asset manager. The analysis of policy alternatives reveals a trilemma between maintaining a liquid Treasury market, minimizing rent-seeking, and facilitating intergenerational risk sharing.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt1168177r.

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Date of creation: 01 Jan 2002
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Handle: RePEc:cdl:ucsbec:qt1168177r

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Keywords: Government; Asset; Liability; Management; Public Debt;

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References

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  1. Douglas W. Elmendorf & Jeffrey B. Liebman, 2000. "Social Security Reform and National Saving in an Era of Budget Surpluses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 1-72.
  2. Vincent Reinhart & Brian Sack, 2000. "The Economic Consequences of Disappearing Government Debt," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 163-220.
  3. Michael J. Fleming, 2000. "The benchmark U.S. Treasury market: recent performance and possible alternatives," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 129-145.
  4. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  5. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
  6. Henning Bohn, . "Budget Balance Through Revenue or Spending Adjustments ? Some Historical Evidence for the United States (Reprint 013)," Rodney L. White Center for Financial Research Working Papers 03-91, Wharton School Rodney L. White Center for Financial Research.
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Cited by:
  1. Udaibir S. Das & Yinqiu Lu & Michael G Papaioannou & Iva Petrova, 2012. "Sovereign Risk and Asset and Liability Management," IMF Working Papers 12/241, International Monetary Fund.
  2. Lassila , Jukka & Valkonen, Tarmo, 2008. "Population ageing and fiscal sustainability in Finland: a stochastic analysis," Research Discussion Papers 28/2008, Bank of Finland.

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