Debt maturity
is long-term debt optimal?
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Author
Contributions
- Kanczuk, Fabio, 1969- - Contributor
- National Bureau of Economic Research. - Contributor
Publication
2007 - National Bureau of Economic Research, Cambridge, Mass, Massachusetts
Language
English
Word Count
9,000 words, Guess
Page Count
36 pages
Identifiers
- OCLC Control Number145585521
- Open LibraryOL17634051M
Description
We model and calibrate the arguments in favor and against short-term and long-term debt. These arguments broadly include: maturity premium, sustainability, and service smoothing. We use a dynamic equilibrium model with tax distortions and government outlays uncertainty, and model maturity as the fraction of debt that needs to be rolled over every period. In the model, the benefits of defaulting are tempered by higher future interest rates. We then calibrate our artificial economy and solve for the optimal debt maturity for Brazil as an example of a developing country and the U.S. as an example of a mature economy. We obtain that the calibrated costs from defaulting on long-term debt more than offset costs associated with short-term debt. Therefore, short-term debt implies higher welfare levels.
Subjects
Topics
Places
Series Statement
- NBER working paper series -- no. 13119.
- Working paper series (National Bureau of Economic Research) -- no. 13119.
Links
Other Editions
- Debt maturity: is long-term debt optimal?
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