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The Optimal Maturity of Government Debt 37 create confusion and communication challenges. Instead, the Treasury should make its debt management decisions focused on its other objectives, and the Fed should simply take into account any economic effects of those decisions when deciding on the appropriate stance of monetary policy. On the fourth objective—promoting financial stability—it is worth having this discussion, but in my view there remain some unresolved issues. The authors focus on one particular source of financial instability—the tendency of private markets to create excessive amounts of money-like instruments— and argue that greater Treasury bill issuance could crowd out some of that activity. I am sympathetic to that argument, as I think the financial system would function better with a greater supply of short-term risk-free instruments . However, introducing a financial stability objective into debt management raises some challenging questions. I worry about the scope of such a mandate—if other perceived vulnerabilities emerge that could be influenced by maturity supply, would Treasury then be obligated to respond with debt management decisions? I worry about the implementation of such a mandate—is Treasury supposed to monitor private sector maturity transformation and adjust the supply of bills in a discretionary manner in response? And I worry that debt management is not really the appropriate tool for addressing financial stability concerns—isn’t financial regulation intended for these purposes? In short, it might simply be too great of a burden for debt management to take on financial stability issues. Overall, this chapter advances our understanding of the framework that should govern debt management decisions. I hope it leads to further refinement of the parts of the objective function that clearly belong, and additional discussion of the parts that are more debatable. In the end, we should hope to arrive at a more explicit and comprehensive description of the goals of debt management and hence better grasp the optimal structure of the public debt. References Adrian, Tobias, Richard K. Crump, and Emanuel Moench. 2013. “Pricing the Term Structure with Linear Regressions.” Journal of Financial Economics 110, no. 1 (October): 110–38. Amihud, Yakov, and Haim Mendelson. 1991. “Asset Prices and Financial Policy.” Financial Analysts Journal 47, no. 6 (November): 56–66. Auerbach, Alan J., and William G. Gale. 2009. “The Economic Crisis and the Fiscal Crisis, 2009 and Beyond.” Tax Notes 125, no. 1 (October): 101–30. 38 R. Greenwood, S. G. Hanson, J. S. Rudolph, and L. H. Summers Barro, Robert J. 1974. “Are Government Bonds Net Wealth?” Journal of Political Economy 82, no. 6 (November–December): 1095–117. ———. 1979. “On the Determination of the Public Debt.” Journal of Political Economy 87, no. 5 (October): 940–71. Bernanke, Ben, Vincent R. Reinhart, and Brian P. Sack. 2004. “Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment.” Brookings Papers on Economic Activity no. 2: 1–100. Campbell, John Y., Robert J. Shiller, and Luis M. Viceira. 2009. “Understanding Inflation-Indexed Bond Markets.” Brookings Papers on Economic Activity (Spring): 79–120. Carlson, Mark, Burcu Duygan-Bump, Fabio Natalucci, William R. Nelson, Marcelo Ochoa, Jeremy Stein, and Skander Van den Heuvel. 2014. “The Demand for Short-Term, Safe Assets and Financial Stability: Some Evidence and Implications for Central Bank Policies,” FEDS Working Paper 2014-102 (Washington , D.C.: Federal Reserve Board of Governors). Chetty, Raj. 2012. “Bounds on Elasticities with Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply.” Econometrica 80: 969–1018. Cochrane, John H. 2001. “Long-Term Debt and Optimal Policy in the Fiscal Theory of the Price Level.” Econometrica 69, no. 1 (January): 69–116. ———. 2014. “Monetary Policy with Interest on Reserves,” mimeo, September. Cochrane, John H., and Monika Piazzesi. 2005. “Bond Risk Premia.” American Economic Review 95, no. 1 (March): 138–60. Duffee, Gregory R. 1996. “Idiosyncratic Variation of Treasury Bill Yields.” Journal of Financial Studies 24: 2895–934. Ferguson, Niall, Andreas Schaab, and Moritz Schularick. 2014. “Central Bank Balance Sheets: Expansion and Reduction since 1900,” ECB Forum on Central Banking. Fleckenstein, Matthias, Francis A. Longstaff, and Hanno Lustig. 2014. “The TIPS–Treasury Bond Puzzle.” Journal of Finance 69: 2151–2197. Fleming, Michael J. 2000. “The Benchmark U.S. Treasury Market: Recent Performance and Possible Alternatives.” Federal Reserve Bank of New York, Economic Policy Review 6, no. 1 (April): 129–45. Friedman, Milton. 1960. A Program for Monetary Stability. Fordham University Press. Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack. 2011. “LargeScale Asset Purchases by the Federal Reserve: Did They...


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