A Comparative-Advantage Approach to Government Debt Maturity
Published Version
https://doi.org/10.1111/(ISSN)1540-6261Metadata
Show full item recordCitation
Greenwood, Robin, Samuel G. Hanson, and Jeremy C. Stein. "A Comparative-Advantage Approach to Government Debt Maturity." Journal of Finance (forthcoming).Abstract
We study optimal government debt maturity in a model where investors derive monetary services from holding riskless short-term securities. In a 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 short-term, 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.Terms of Use
This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAPCitable link to this page
http://nrs.harvard.edu/urn-3:HUL.InstRepos:14011000
Collections
- HBS Scholarly Articles [854]
Contact administrator regarding this item (to report mistakes or request changes)