Working Paper: NBER ID: w18922
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: Bond Market; Yield Curve; Government Debt; Clienteles
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 long-horizon clientele (G29) | increase in price of long-term bonds (E43) |
| increase in long-horizon clientele (G29) | increase in optimal supply of long-term bonds (G12) |
| demographic shifts toward older population (J11) | steeper yield curve (E43) |
| demographic shifts toward older population (J11) | lower average maturity of government debt (H63) |
| risk aversion greater than log (D81) | increase in demand for long-term bonds (E43) |
| optimal maturity structure (G32) | long-term bonds have negative expected excess returns compared to short-term bonds (G12) |