University of Surrey

Test tubes in the lab Research in the ATI Dance Research

Optimal Time-Consistent Government Debt Maturity

Debortoli, D, Praca Cavaco Nunes, Ricardo and Yared, P (2017) Optimal Time-Consistent Government Debt Maturity The Quarterly Journal of Economics, 132 (1). pp. 55-102.

main_file.pdf - Accepted version Manuscript

Download (469kB) | Preview


This paper develops a model of optimal government debt maturity in which the government cannot issue state-contingent bonds and cannot commit to fiscal policy. If the government can perfectly commit, it fully insulates the economy against government spend- ing shocks by purchasing short-term assets and issuing long-term debt. These positions are quantitatively very large relative to GDP and do not need to be actively managed by the government. Our main result is that these conclusions are not robust to the introduction of lack of commitment. Under lack of commitment, large and tilted debt positions are very expensive to finance ex-ante since they exacerbate the problem of lack of commitment ex-post. In contrast, a flat maturity structure minimizes the cost of lack of commitment, though it also limits insurance and increases the volatility of fiscal policy distortions. We show that the optimal time-consistent maturity structure is nearly at because reducing average borrowing costs is quantitatively more important for welfare than reducing fiscal policy volatility. Thus, under lack of commitment, the government actively manages its debt positions and can approximate optimal policy by confining its debt instruments to consols.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Debortoli, D
Praca Cavaco Nunes,
Yared, P
Date : February 2017
DOI : 10.1093/qje/qjw033
Copyright Disclaimer : This is a pre-copyedited, author-produced version of an article accepted for publication in The Quarterly Journal of Economics following peer review. The version of record: Davide Debortoli, Ricardo Nunes, Pierre Yared; Optimal Time-Consistent Government Debt Maturity, The Quarterly Journal of Economics, Volume 132, Issue 1, 1 February 2017, Pages 55–102, is available online at:
Depositing User : Melanie Hughes
Date Deposited : 10 Oct 2017 15:35
Last Modified : 13 Oct 2018 02:08

Actions (login required)

View Item View Item


Downloads per month over past year

Information about this web site

© The University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom.
+44 (0)1483 300800