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

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  • Stephane Guibaud

    ()

  • Yves NOsbusch

    ()

  • Dimitri Vayanos

    ()

Abstract

We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at different life cycle stages in an overlapping-generations economy. An optimal maturity structure exists in the absence of distortionary taxes and induces efficient intergenerational risksharing. If agents are more risk-averse than log, then an increase in the long-horizon clientele raises the price and optimal supply of long-term bonds. But while a welfare-maximizing government caters to clienteles, it does not accommodate fully their demand, and limits issuance of long-term bonds to a level where these earn negative expected excess returns.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp669.

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Date of creation: Feb 2011
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Handle: RePEc:fmg:fmgdps:dp669

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  17. George-Marios Angeletos, 2002. "Fiscal Policy With Noncontingent Debt And The Optimal Maturity Structure," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1105-1131, August.
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Cited by:
  1. Challe, E. & Le Grand, F. & Ragot, X., 2010. "Incomplete markets, liquidation risk, and the term structure of interest rates," Working papers 301, Banque de France.

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