A Framework for Debt-Maturity Management

93 Pages Posted: 28 Jun 2019 Last revised: 17 Jul 2019

See all articles by Saki Bigio

Saki Bigio

University of California, Los Angeles (UCLA) - Department of Economics

Galo Nuno

Banco de España

Juan Passadore

Einaudi Institute for Economics and Finance (EIEF)

Multiple version iconThere are 2 versions of this paper

Date Written: June 27, 2019

Abstract

We characterize the optimal debt-maturity management problem of a government in a small open economy. The government issues a continuum of finite-maturity bonds in the presence of liquidity frictions. We find that the solution can be decentralized: the optimal issuance of a bond of a given maturity is proportional to the difference between its market price and its domestic valuation, the latter defined as the price computed using the government’s discount factor. We show how the steady-state debt distribution decreases with maturity. These results hold when extending the model to incorporate aggregate risk or strategic default.

Keywords: debt maturity, debt management, liquidity costs

JEL Classification: F34, F41, G11

Suggested Citation

Bigio, Saki and Nuno, Galo and Passadore, Juan, A Framework for Debt-Maturity Management (June 27, 2019). Banco de Espana Working Paper No. 1919 (2019). Available at SSRN: https://ssrn.com/abstract=3411022

Saki Bigio (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Galo Nuno

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Juan Passadore

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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