Monetary Policy and the Maturity Structure of Public Debt
216 Pages Posted: 13 Sep 2021 Last revised: 24 Nov 2021
Date Written: November 23, 2021
This paper studies the mediating impact of the maturity of public debt in the transmission of monetary policy shocks to economic activity. A longer debt maturity attenuates greatly the effect of monetary policy: going from the average historical duration of US debt to very short term debt doubles the impact of a rise of the policy rate on output. A similar result holds in UK data. Using data on corporate debt, spreads, investment, and fiscal variables, I show that these effects can be traced back to a quantitatively important financing channel. A model featuring an interaction between an empirically estimated primary market friction and a standard financial accelerator is able to account for these facts.
Keywords: monetary policy transmission, public debt management, maturity structure, primary market friction
JEL Classification: E52, E62, E63, G20, H32, H63
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