Working Paper: CEPR ID: DP9407
Authors: Stéphane Guibaud; Yves Nosbusch; Dimitri Vayanos
Abstract: We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at different lifecycle stages in an overlapping-generations economy. An optimal maturity structure exists in the absence of distortionary taxes and induces efficient intergenerational risksharing. If agents are more risk-averse than log, then an increase in the long-horizon clientele raises the price and optimal supply of long-term bonds---effects that we also confirm empirically in a panel of OECD countries. Moreover, under the optimal maturity structure, catering to clienteles is limited and long-term bonds earn negative expected excess returns.
Keywords: clientele effects; debt management; government debt; interest rates; preferred habitat
JEL Codes: E43; G11; G12; H21; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in the long-horizon clientele (D15) | higher prices for long-term bonds (E43) |
| increase in the long-horizon clientele (D15) | increase in optimal supply of long-term bonds by the government (H63) |
| demographic changes (J11) | affect the slope of the yield curve positively (E43) |
| demographic changes (J11) | affect average maturity of government debt negatively (E43) |
| increase in long-horizon clientele (G29) | raises demand for long-term bonds (E43) |
| raises demand for long-term bonds (E43) | raises their price (D41) |
| optimal maturity structure (G32) | limits catering to clienteles (L84) |
| government’s optimal maturity structure (H63) | affects future generations' tax burdens (H60) |