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| Author: | Nosbusch, Y. |
| Title: | Interest costs and the optimal maturity structure of government debt |
| Journal: | Economic Journal
2008 : MAR, VOL. 118:527, p. 477-498 |
| Index terms: | debt management government incomplete markets monetary policy optimization |
| Language: | eng |
| Abstract: | This paper examines government's optimal debt portfolio in an incomplete markets model. The government can choose from two debt instruments, long-term and short-term non-contingent, nominal bonds and it has to take account of the trade-off between the benefits of tax smoothing and an associated increase in expected interest cost. The general rule is that within this frame it's beneficial to borrow long and invest short. This results in welfare gains close to those that are attainable with complete markets. |
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