A Comparative-Advantage Approach to Government Debt Maturity

By Robin Greenwood, S. G. Hanson, Jeremy C. Stein. 2010

312 citations recorded by the source corpus.

We study optimal government debt maturity in a model where investors derive monetary services from holding riskless short-term securities. In a simple setting where the government is the only issuer of such riskless paper, it trades off the monetary premium associated with short-term debt against the refinancing risk implied by the need to roll over its debt more often. We then extend the model to allow private financial intermediaries to compete with the government in the provision of money-like claims. We argue that if there are negative externalities associated with private money creation, the government should tilt its issuance more towards short maturities. The idea is that the government may have a comparative advantage relative to the private sector in bearing refinancing risk, and hence should aim to partially crowd out the private sector’s use of short-term debt.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/b395580d57164ba8ba062d3bd3c20237832a86c9

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Citations in the corpus

The History and Economics of Safe Assets (2016, unknown): “Figure adapted with permission from Greenwood et al. (2015).”
Banks, Liquidity Management, and Monetary Policy (2014, unknown): “Along that dimension, our model is also related to Stein (2012) and Stein et al. (2013) who study environments where there is and exogenous demand for safe short-term liquid assets with implications for policy.”
Banking, Trade, and the Making of a Dominant Currency* (2020, background): “is type of formulation, with a preference for safe money-like claims embedded directly in the utility function, follows a number of recent papers including Krishnamurthy and Vissing-Jorgensen (2012), Stein (2012), Sunderam (2015), Greenwood et al. (2015), and Nagel (2016).6 However, unlike these ot”
The U.S. Treasury Premium (2017, unknown): “Treasuries, in particular Krishnamurthy and Vissing-Jorgensen (2012), Nagel (2016) and Greenwood et al. (2015). Krishnamurthy and Vissing-Jorgensen (2012) examine the effect of the amount of debt outstanding on the liquidity and safety premia of U.S. Treasuries. The authors estimate the premium at 7”
The Optimal Conduct of Monetary Policy with Interest on Reserves (2012, background): “Greenwood, Hanson, and Stein (2010) use this observation as the point of departure for a normative theory of government debt maturity.”
Benefits and Costs of Bank Capital (2016, background): “…the demand for safe and liquid assets (Gorton, Lewellen, and Metrick 2012), confirming the presence of cash investors in financial markets.5 Greenwood, Hanson, and Stein (2010) and Krishnamurthy and Vissing-Jorgensen (2012) estimate the riskadjusted premium of Treasuries over other bonds…”
Has the U.S. Finance Industry Become Less Efficient? on the Theory and Measurement of Financial Intermediation (2015, unknown): “By using a model to interpret long time series of prices and quantities, and by providing a set of stylized facts for future research, this paper shares the spirit of Mehra and Prescott (1985). But because financial intermediation is a more heterogenous field than asset pricing, this paper has to dr”
Treasury inconvenience yields during the COVID-19 crisis (2020, background): “…(2004) , and more recent ones by Krishnamurthy and Vissing-Jorgensen (2012) , Bansal et al. (2011) , Xie (2012) , Sunderam (2014) , Nagel (2016) , Greenwood et al. (2015) , Du et al. (2018) , Fleckenstein and Longstaff (2018) , Kacperczyk et al. (2019) , Jiang et al. (2019) , and He and Song…”