Maturity Structure and Liquidity Risk

David Andolfatto ()

No 2020-008, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper studies the optimal maturity structure for government debt when markets for liquidity insurance are incomplete or non-competitive. There is no fiscal risk. Government debt in the model solves a dynamic inefficiency. Issuing debt in short and long maturities solves a liquidity insurance problem, but optimal yield curve policy is only possible if long-duration debt is rendered illiquid. Optimal policy is implementable through treasury operations only--adjustments in the primary deficit are not necessary.

Keywords: Maturity structure; yield curves; liquidity (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2020-04
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:87863

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DOI: 10.20955/wp.2020.008

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