The Commitment Benefit of Consols in Government Debt Management

Pierre Yared, Ricardo Nunes and Davide Debortoli

No 1254, Working Papers from Barcelona School of Economics

Abstract: We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government's current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices -which impacts future policy- feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs.

Keywords: optimal taxation; fiscal policy; public debt (search for similar items in EconPapers)
JEL-codes: E62 H21 H63 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-mac and nep-pub
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Journal Article: The Commitment Benefit of Consols in Government Debt Management (2022)
Working Paper: The commitment benefit of consols in government debt management (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1254

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