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A framework for debt-maturity management

Author

Listed:
  • Saki Bigio

    (UCLA)

  • Galo Nuño

    (Banco de España)

  • Juan Passadore

    (EIEF)

Abstract

We characterize the optimal debt-maturity management problem of a government in a small open economy. The government issues a continuum of finite-maturity bonds in the presence of liquidity frictions. We find that the solution can be decentralized: the optimal issuance of a bond of a given maturity is proportional to the difference between its market price and its domestic valuation, the latter defined as the price computed using the government’s discount factor. We show how the steady-state debt distribution decreases with maturity. These results hold when extending the model to incorporate aggregate risk or strategic default.

Suggested Citation

  • Saki Bigio & Galo Nuño & Juan Passadore, 2019. "A framework for debt-maturity management," Working Papers 1919, Banco de España.
  • Handle: RePEc:bde:wpaper:1919
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    Cited by:

    1. Dimitri Vayanos & Jean‐Luc Vila, 2021. "A Preferred‐Habitat Model of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 89(1), pages 77-112, January.
    2. D. Cornille & H. Godefroid & L. Van Meensel & S. Van Parys, 2019. "How risky is the high public debt in a context of low interest rates ?," Economic Review, National Bank of Belgium, issue ii, pages 70-96, September.

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    More about this item

    Keywords

    debt maturity; debt management; liquidity costs;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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