Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243282 
Year of Publication: 
2021
Series/Report no.: 
SAFE Working Paper No. 323
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect the expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory directly depend on the conditional nominal term premium, giving rise to an optimal debt maturity policy that is state dependent. In a calibrated macro-finance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.
Subjects: 
Term structure of interest rates
Fiscal theory of the price level
Bond risk premia
Government debt
DSGE models
Nonlinear solution methods
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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