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The Optimal Maturity of Government Debt

Author

Listed:
  • Anmol Bhandari

    (University of Minnesota)

  • David Evans

    (University of Oregon)

  • Mikhail Golosov

    (University of Chicago)

  • Thomas Sargent

    (New York University)

Abstract

We develop a novel class of perturbations to study the optimal composition of a government's debt portfolio. We derive a formula for the optimal portfolio and show that it can be expressed in terms of estimable “sufficient statistics”. We use U.S. data to calculate the key moments required by our theory and show that they imply that the optimal portfolio is approximately geometrically declining in bonds of different maturities and requires little rebalancing in response to aggregate shocks. Our optimal portfolio differs from portfolios prescribed by existing models often used in the business cycle literature and also from those adopted by the U.S. Treasury. The key normative differences are driven by counterfactual asset pricing implications of standard models.

Suggested Citation

  • Anmol Bhandari & David Evans & Mikhail Golosov & Thomas Sargent, 2019. "The Optimal Maturity of Government Debt," 2019 Meeting Papers 1011, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1011
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    References listed on IDEAS

    as
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    2. Philip Barrett & Christopher Johns, 2024. "Parameterizing Debt Maturity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1321-1365, September.
    3. Jason Allen & Jakub Kastl & Milena Wittwer, 2020. "Maturity Composition and the Demand for Government Debt," Staff Working Papers 20-29, Bank of Canada.

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