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The Aggregate Demand for Treasury Debt

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  • Annette Vissing-Jorgensen

    (Kellogg School of Management, Northwestern University)

  • Arvind Krishnamurthy

    (Kellogg School of Management, Northwestern University)

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    Abstract

    holders also have downward sloping demand curves. Groups for whom the liquidity of Treasuries is likely to be more important have steeper demand curves. The results have bearing for important questions in finance and macroeconomics. We discuss implications for the behavior of corporate bond spreads, interest rate swap spreads, the riskless interest rate, and the value of aggregate liquidity. We also discuss the implications of our results for the financing of the US deficit, Ricardian equivalence, and the effects of foreign central bank demand on Treasury yields.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 713.

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    Date of creation: 2008
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    Handle: RePEc:red:sed008:713

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    1. Evans, Paul, 1987. "Do budget deficits raise nominal interest rates? : Evidence from six countries," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(2), pages 281-300, September.
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    3. Bansal, Ravi & Coleman, Wilbur John, II, 1996. "A Monetary Explanation of the Equity Premium, Term Premium, and Risk-Free Rate Puzzles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(6), pages 1135-71, December.
    4. Duffie, Darrell & Singleton, Kenneth J, 1997. " An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, American Finance Association, vol. 52(4), pages 1287-1321, September.
    5. Pierre Collin-Dufresne, 2001. "On the Term Structure of Default Premia in the Swap and LIBOR Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 56(3), pages 1095-1115, 06.
    6. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    7. S. Rao Aiyagari & Mark Gertler, 1990. "Asset Returns with Transactions Cost and Uninsured Risk: A Stage III Exercise," NBER Working Papers 3481, National Bureau of Economic Research, Inc.
    8. Wicker, Elmus R, 1969. "The World War II Policy of Fixing a Pattern of Interest Rates," Journal of Finance, American Finance Association, American Finance Association, vol. 24(3), pages 447-58, June.
    9. Robert J. Barro, 1986. "Government Spending, Interest Rates, Prices, and Budget Deficits in the United Kingdom, 1701-1918," NBER Working Papers 2005, National Bureau of Economic Research, Inc.
    10. Dimitri Vayanos & Jean-Luc Vila, 1999. "Equilibrium interest rate and liquidity premium with transaction costs," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 453, London School of Economics and Political Science, LSE Library.
    11. Pierre Collin-Dufresne, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, American Finance Association, vol. 56(6), pages 2177-2207, December.
    12. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Feb.
    13. Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, American Finance Association, vol. 56(1), pages 247-277, 02.
    14. Plosser, Charles I., 1987. "Fiscal policy and the term structure," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(2), pages 343-367, September.
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    Cited by:
    1. Guillaume Rocheteau, 2009. "A monetary approach to asset liquidity," Working Paper, Federal Reserve Bank of Cleveland 0901, Federal Reserve Bank of Cleveland.
    2. Robin Greenwood & Samuel Hanson & Jeremy C. Stein, 2010. "A Gap-Filling Theory of Corporate Debt Maturity Choice," Journal of Finance, American Finance Association, American Finance Association, vol. 65(3), pages 993-1028, 06.
    3. Nicola Gennaioli & Andrei Shleifer & Robert W. Vishny, . "A Model of Shadow Banking," Working Paper 19521, Harvard University OpenScholar.
    4. Arvind Krishnamurthy, 2009. "How Debt Markets have Malfunctioned in the Crisis," NBER Working Papers 15542, National Bureau of Economic Research, Inc.
    5. Rocheteau, Guillaume, 2011. "Payments and liquidity under adverse selection," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(3), pages 191-205.
    6. Acikgoz, Omer, 2013. "Transitional Dynamics and Long-run Optimal Taxation Under Incomplete Markets," MPRA Paper 50160, University Library of Munich, Germany.
    7. Matthew Canzoneri & Robert E. Cumby & Behzad Diba & David Lopez-Salido, 2008. "The Macroeconomic Implications of a Key Currency," NBER Working Papers 14242, National Bureau of Economic Research, Inc.
    8. Glenn D. Rudebusch, 2010. "Macro-Finance Models Of Interest Rates And The Economy," Manchester School, University of Manchester, University of Manchester, vol. 78(s1), pages 25-52, 09.
    9. Zagaglia, Paolo, 2009. "Forecasting with a DSGE Model of the term Structure of Interest Rates: The Role of the Feedback," Research Papers in Economics, Stockholm University, Department of Economics 2009:14, Stockholm University, Department of Economics.
    10. Obstfeld, Maurice, 2010. "The immoderate world economy," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(4), pages 603-614, June.
    11. Henning Bohn, 2011. "The Economic Consequences of Rising U.S. Government Debt: Privileges at Risk," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 67(3), pages 282-302, September.
    12. Atanasov, Vladimir & Merrick, John, 2011. "Financial asset demand is elastic: Evidence from new issues of Federal Home Loan Bank debt," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(12), pages 3225-3239.
    13. Paolo Zagaglia, 2013. "Forecasting Long-Term Interest Rates with a General-Equilibrium Model of the Euro Area: What Role for Liquidity Services of Bonds?," Asia-Pacific Financial Markets, Springer, Springer, vol. 20(4), pages 383-430, November.
    14. Lipsky, John, 2009. "Asia, the financial crisis, and global economic governance - closing remarks," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Oct, pages 347-353.

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