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Bond market clienteles, the yield curve, and the optimal maturity structure of government debt

Guibaud, Stéphane, Nosbusch, Yves and Vayanos, Dimitri (2013) Bond market clienteles, the yield curve, and the optimal maturity structure of government debt. Review of Financial Studies, 26 (8). pp. 1914-1961. ISSN 0893-9454

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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.

Item Type: Article
Official URL: http://rfs.oxfordjournals.org/
Additional Information: © 2013 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management
Sets: Departments > Finance
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Funders: PaulWoolley Centre
Date Deposited: 23 Apr 2013 12:59
URL: http://eprints.lse.ac.uk/37407/

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