Interest Costs and the Optimal Maturity Structure Of Government Debt
Yves Nosbusch ()
Economic Journal, 2008, vol. 118, issue 527, 477-498
The government faces a trade-off between the benefits of tax smoothing and an associated increase in expected interest costs when choosing its optimal debt portfolio. The article solves for optimal policies in an incomplete markets model where the government uses two debt instruments, long-term and short-term non-contingent, nominal bonds. In this setup the basic prescription is to borrow long and invest short even though equilibrium expected interest costs are higher on long-term debt. The resulting welfare gains are close to what the government could achieve with complete markets. Significant welfare gains are possible even in the presence of leverage constraints. Copyright © 2008 The Author(s).
References: Add references at CitEc
Citations: View citations in EconPapers (33) Track citations by RSS feed
Downloads: (external link)
http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2007.02130.x link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:118:y:2008:i:527:p:477-498
Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0013-0133
Access Statistics for this article
Economic Journal is currently edited by Martin Cripps, Steve Machin, Woulter den Haan, Andrea Galeotti, Rachel Griffith and Frederic Vermeulen
More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().