52ca6dc1___Carlson_School_of_Management__Presentation
[Date] 10/3/2014 [Presentation] 
Howard Kung, London Business School “ Government Maturity Structure Shocks Government Maturity Structure Shocks (414.34 KB) ” This paper examines the impact of government debt maturity restructuring on inflation and the real economy using a New Keynesian model that features a stochastic maturity structure of nominal debt and allows for changes in the monetary/fiscal policy mix. The irrelevance of open market operations changing the duration of government liabilities (holding the market value constant) is violated when the slope of the yield curve is nonzero in a fiscally-led policy regime. When the yield curve is downward-sloping, shortening the maturity structure increases the government discount rate, which generates fiscal inflation and an expansion in output. The opposite results obtain when the yield curve is upward-sloping. Conditional maturity restructuring policies depending on the slope of the yield curve can smooth macroeconomic fluctuations and over substantial welfare benefits. In a liquidity trap, lengthening the maturity structure can be effective in attenuating deflationary pressure and output losses. In short, this paper highlights the importance of bond risk premia, in conjunction with the government debt valuation equation, as a transmission channel for open market operations.
Finance Department Guest Seminar Archives 2010-Present | Carlson School of Management
Presentation