The commitment benefit of consols in government debt management

Davide Debortoli, Ricardo Nunes and Pierre Yared

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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 impact 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: Public debt; optimal taxation; fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 H21 H63 (search for similar items in EconPapers)
Date: 2021-05, Revised 2021-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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Related works:
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:upf:upfgen:1781

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