G2TT
来源类型Discussion paper
规范类型论文
来源IDDP6873
DP6873 Do Peso Problems Explain the Returns to the Carry Trade?
Martin Eichenbaum; Sérgio Rebelo; Craig Burnside; Isaac Kleshchelski
发表日期2008-06-20
出版年2008
语种英语
摘要A growing literature integrates theories of debt management into models of optimal fiscal policy. One promising theory argues that the composition of government debt should be chosen so that fluctuations in the market value of debt offset changes in expected future deficits. This complete market approach to debt management is valid even when the government only issues non-contingent bonds. A number of authors conclude from this approach that governments should issue long term debt and invest in short term assets. We argue that the conclusions of this approach are too fragile to serve as a basis for policy recommendations. This is because bonds at different maturities have highly correlated returns, causing the determination of the optimal portfolio to be ill-conditioned. To make this point concrete we examine the implications of this approach to debt management in various models, both analytically and using numerical methods calibrated to the US economy. We find the complete market approach recommends asset positions which are huge multiples of GDP. Introducing persistent shocks or capital accumulation only worsens this problem. Increasing the volatility of interest rates through habits partly reduces the size of these positions but at the cost of introducing extreme volatility in asset holdings. Across these simulations we find no presumption that governments should issue long term debt - policy recommendations can be easily reversed through small perturbations in the specification of shocks or small variations in the maturity of bonds issued. We further extend the literature by removing the assumption that governments every period costlessly repurchase all outstanding debt. This exacerbates the size of the required positions, worsens their volatility and in some cases produces instability in debt holdings. We conclude that it is very difficult to insulate fiscal policy from shocks by using the complete markets approach to debt management. Given the limited variability of the yield curve using maturities is a poor way to substitute for state contingent debt. The result is the positions recommended by this approach conflict with a number of features that we believe are important in making bond markets incomplete e.g allowing for transaction costs, liquidity effects, etc..Until these features are all fully incorporated we remain in search of a theory of debt management capable of providing robust policy insights.
主题International Macroeconomics
关键词Complete markets Debt management Government debt Maturity structure Yield curve
URLhttps://cepr.org/publications/dp6873
来源智库Centre for Economic Policy Research (United Kingdom)
资源类型智库出版物
条目标识符http://119.78.100.153/handle/2XGU8XDN/535700
推荐引用方式
GB/T 7714
Martin Eichenbaum,Sérgio Rebelo,Craig Burnside,et al. DP6873 Do Peso Problems Explain the Returns to the Carry Trade?. 2008.
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