TY  - JOUR
TI  - Government Debt Management: The Long and the Short of It
UR  - https://doi.org/10.1093/restud/rdy061
SP  - 2554
A1  - Faraglia, E
A1  - Marcet, A
A1  - Oikonomou, R
A1  - Scott, A
VL  - 86
Y1  - 2019/11//
N2  - Standard optimal Debt Management (DM) models prescribe a dominant role for long bonds and advocate against issuing short bonds. They require very large positions in order to complete markets and assume each period that governments repurchase all outstanding bonds and reissue (r/r) new ones. These features of DM are inconsistent with U.S. data. We introduce incomplete markets via small transaction costs which serves to make optimal DM more closely resemble the data : r/r are negligible, short bond issuance substantial and persistent and short and long bonds positively co-vary. Intuitively, long bonds help smooth taxes over states and short bonds over time. Solving incomplete market models with multiple assets is challenging so a further contribution of this article is introducing a novel computational method to find global solutions.
IS  - 6
EP  - 2604
JF  - The Review of Economic Studies
AV  - public
ID  - discovery10069237
N1  - This version is the author accepted manuscript. For information on re-use, please refer to the publisher?s terms and conditions.
SN  - 1467-937X
ER  -