Debt Management Policy, Interest Rates, and Economic Activity
42 Pages Posted: 27 Apr 2000 Last revised: 10 Apr 2022
Date Written: December 1981
Abstract
The maturity structure of the U.S. government's outstanding debt has undergone large changes over time, at least in part because of shifts in the Treasury's debt management policy. During most of the post World War I1 period, an emphasis on short-term issues rapidly reduced the debt's average maturity. In the early 1960's and again since 1975, however, the opposite policy just as rapidly lengthened (and is now lengthening) the average maturity, Such changes in debt management policy in general affect the structure of relative asset yields as well as nonfinancial economic activity. The evidence presented in this paper indicates that debt management actions of a magnitude comparable to the recent changes in U.S. debt management policy have sizeable effects both in the financial markets and more broadly. In particular, a shift from long-term to short-term government debt - that is, a shift opposite to the Treasury's recent policy - lowers yields on long-term assets, raises yields on short-term assets, and in the short run stimulates output and spending. Moreover, the stimulus to spending is disproportionately concentrated in fixed investment, so that debt management actions shortening the maturity of the government debt not only increase the economy's output but also shift the composition of output toward increased capital formation.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Yield Spreads and Interest Rate Movements: A Bird's Eye View
-
Parsimoneous Modeling of Yield Curves for U.S. Treasury Bills
-
Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994
-
Estimating and Interpreting Forward Interest Rates: Sweden 1992-1994
-
The Changing Behavior of the Term Structure of Interest Rates
-
Do We Reject Too Often? Small Sample Properties of Tests of Rational Expectations Models
-
Drawing Inferences from Statistics Based on Multi-Year Asset Returns