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The interest rate effects of government debt maturity

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  • Jagjit Chadha
  • Philip Turner
  • Fabrizio Zampolli

Abstract

Using an empirical model, this paper finds that shortening the average maturity of US Treasury debt held outside the Federal Reserve by one year reduces the five-year forward 10-year yield by between 130 and 150 basis points. Based on a pre-crisis period, these estimates suggest that portfolio balance effects are unlikely to reflect only post-crisis market conditions. These findings also offer a partial explanation for the Greenspan conundrum: the fact that long-term interest rates in the mid-2000s rose less than expected after a rise in the Fed fund rate may have been due, to some extent, to the concomitant shortening of government debt maturity.

Suggested Citation

  • Jagjit Chadha & Philip Turner & Fabrizio Zampolli, 2017. "The interest rate effects of government debt maturity," National Institute of Economic and Social Research (NIESR) Discussion Papers 476, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:476
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    More about this item

    Keywords

    government debt; modelling; Federal Reserve;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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