Preferred Habitat and the Optimal Maturity Structure of Government Debt

31 Pages Posted: 28 Feb 2008

See all articles by Stéphane Guibaud

Stéphane Guibaud

SciencesPo - Department of Economics

Yves Nosbusch

London School of Economics & Political Science (LSE)

Dimitri Vayanos

London School of Economics; Center for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: February 26, 2008

Abstract

We propose a clientele-based theory of the optimal maturity structure of government debt. We assume a three-period economy in which clienteles correspond to generations of agents consuming in different periods. An optimal maturity structure exists even in the absence of distortionary taxes, and consists in the government replicating the actions of private agents not yet present in the market. The optimal fraction of long-term debt increases in the weight of the long-horizon clientele, provided that agents are more risk-averse than log. We examine how changes in maturity structure affect equilibrium prices and show that in contrast to most representative-agent models, lengthening the maturity structure raises the slope of the yield curve.

Keywords: Government debt, Maturity structure, Intergenerational risksharing

JEL Classification: H63, E44, E43

Suggested Citation

Guibaud, Stephane and Nosbusch, Yves and Vayanos, Dimitri, Preferred Habitat and the Optimal Maturity Structure of Government Debt (February 26, 2008). Available at SSRN: https://ssrn.com/abstract=1098195 or http://dx.doi.org/10.2139/ssrn.1098195

Stephane Guibaud

SciencesPo - Department of Economics ( email )

28 Rue des Saints-Pères
Paris, 75007
France

Yves Nosbusch

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Dimitri Vayanos (Contact Author)

London School of Economics ( email )

A350
Houghton Street
London WC2A 2AE
United Kingdom
+44 (0)20 7955 6382 (Phone)
+44 (0)20 7955 7420 (Fax)

Center for Economic Policy Research (CEPR)

London
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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