Debt Management Policy, Interest Rates, and Economic Activity / Benjamin M. Friedman.

By:

Friedman, Benjamin M

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0830.Publication details: Cambridge, Mass. National Bureau of Economic Research 1981.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: The maturity structure of the U.S. government's outstanding debt has undergone large changes over time, at least in part because of shifts in the Treasury's debt management policy. During most of the post World War I1 period, an emphasis on short-term issues rapidly reduced the debt's average maturity. In the early 1960's and again since 1975, however, the opposite policy just as rapidly lengthened (and is now lengthening) the average maturity, Such changes in debt management policy in general affect the structure of relative asset yields as well as nonfinancial economic activity. The evidence presented in this paper indicates that debt management actions of a magnitude comparable to the recent changes in U.S. debt management policy have sizeable effects both in the financial markets and more broadly. In particular, a shift from long-term to short-term government debt - that is, a shift opposite to the Treasury's recent policy - lowers yields on long-term assets, raises yields on short-term assets, and in the short run stimulates output and spending. Moreover, the stimulus to spending is disproportionately concentrated in fixed investment, so that debt management actions shortening the maturity of the government debt not only increase the economy's output but also shift the composition of output toward increased capital formation.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0830 (Browse shelf(Opens below))	Not For Loan

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December 1981.

The maturity structure of the U.S. government's outstanding debt has undergone large changes over time, at least in part because of shifts in the Treasury's debt management policy. During most of the post World War I1 period, an emphasis on short-term issues rapidly reduced the debt's average maturity. In the early 1960's and again since 1975, however, the opposite policy just as rapidly lengthened (and is now lengthening) the average maturity, Such changes in debt management policy in general affect the structure of relative asset yields as well as nonfinancial economic activity. The evidence presented in this paper indicates that debt management actions of a magnitude comparable to the recent changes in U.S. debt management policy have sizeable effects both in the financial markets and more broadly. In particular, a shift from long-term to short-term government debt - that is, a shift opposite to the Treasury's recent policy - lowers yields on long-term assets, raises yields on short-term assets, and in the short run stimulates output and spending. Moreover, the stimulus to spending is disproportionately concentrated in fixed investment, so that debt management actions shortening the maturity of the government debt not only increase the economy's output but also shift the composition of output toward increased capital formation.