The Commitment Benefit of Consols in Government Debt Management

Davide Debortoli, Ricardo Nunes and Pierre Yared

American Economic Review: Insights, 2022, vol. 4, issue 2, 255-70

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.

JEL-codes: E62 G12 H61 H63 (search for similar items in EconPapers)
Date: 2022
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Working Paper: The Commitment Benefit of Consols in Government Debt Management (2021)
Working Paper: The commitment benefit of consols in government debt management (2021)
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DOI: 10.1257/aeri.20210341

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