Discount Rates, Debt Maturity, and the Fiscal Theory

Corhay, A, Kind, T, Kung, H and Morales, G (2023) Discount Rates, Debt Maturity, and the Fiscal Theory. Journal of Finance, 78 (6). pp. 3561-3620. ISSN 0022-1082 OPEN ACCESS


This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory depend directly on the conditional nominal term premium, giving rise to an optimal debt‐maturity policy that is state‐dependent. In a calibrated macrofinance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.

More Details

Item Type: Article
Subject Areas: Finance
Date Deposited: 30 Oct 2023 12:18
Date of first compliant deposit: 30 Oct 2023
Last Modified: 08 Nov 2023 17:28

Export and Share


Published Version - Text
  • Available under License


View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item