Working Paper: NBER ID: w3944
Authors: Alessandro Missale; Olivier Jean Blanchard
Abstract: At low and moderate levels of government debt, there appears to be little relation between the level of debt and its maturity. But at high levels of debt, a strong inverse relation emerges. We start the paper by documenting this inverse relation for those OECD Countries which have reached very high levels of debt. We then provide a theory of the joint movements of debt and maturity which can explain both sets of facts. It is based on the idea that, at high levels of debt, the government may need to decrease the maturity of the debt as debt increases, in order to maintain the credibility of its anti-inflation stance.
Keywords: debt; maturity; government finance; inflation
JEL Codes: E62; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| debt-to-GNP ratio (H60) | effective maturity (C41) |
| debt levels (H63) | effective maturity (C41) |
| debt levels (H63) | debt maturity (H63) |
| debt-to-GNP ratio (H60) | debt maturity (H63) |
| debt levels (H63) | credible anti-inflation stance (E31) |
| credible anti-inflation stance (E31) | effective maturity (C41) |