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Dimitri Vayanos - One of the best experts on this subject based on the ideXlab platform.
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bond market clienteles the yield curve and the optimal maturity Structure of Government debt
Review of Financial Studies, 2013Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract:We propose a clientele-based model of the yield curve and optimal maturity Structure of Government debt. Clienteles are generations of agents at different life cycle 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. But while a welfare-maximizing Government caters to clienteles, it does not accommodate fully their demand, and limits issuance of long-term bonds to a level where these earn negative expected excess returns.
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bond market clienteles the yield curve and the optimal maturity Structure of Government debt
National Bureau of Economic Research, 2013Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract: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.
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preferred habitat and the optimal maturity Structure of Government debt
Social Science Research Network, 2008Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract:We propose a clientele-based theory of the optimal maturity Structure of Government debt. We assume a three-period economy in which clienteles correspond to generations of agents consuming in different periods. An optimal maturity Structure exists even in the absence of distortionary taxes, and consists in the Government replicating the actions of private agents not yet present in the market. The optimal fraction of long-term debt increases in the weight of the long-horizon clientele, provided that agents are more risk-averse than log. We examine how changes in maturity Structure affect equilibrium prices and show that in contrast to most representative-agent models, lengthening the maturity Structure raises the slope of the yield curve.
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bond supply and excess bond returns
National Bureau of Economic Research, 2008Co-Authors: Robin Greenwood, Dimitri VayanosAbstract:We examine empirically how the maturity Structure of Government debt affects bond yields and excess returns. Our analysis is based on a theoretical model of preferred habitat in which clienteles with strong preferences for specific maturities trade with arbitrageurs. Consistent with the model, we find that (i) the supply of long- relative to short-term bonds is positively related to the term spread, (ii) supply predicts positively long-term bonds' excess returns even after controlling for the term spread and the Cochrane-Piazzesi factor, (iii) the effects of supply are stronger for longer maturities, and (iv) following periods when arbitrageurs have lost money, both supply and the term spread are stronger predictors of excess returns.
Yves Nosbusch - One of the best experts on this subject based on the ideXlab platform.
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bond market clienteles the yield curve and the optimal maturity Structure of Government debt
Review of Financial Studies, 2013Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract:We propose a clientele-based model of the yield curve and optimal maturity Structure of Government debt. Clienteles are generations of agents at different life cycle 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. But while a welfare-maximizing Government caters to clienteles, it does not accommodate fully their demand, and limits issuance of long-term bonds to a level where these earn negative expected excess returns.
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bond market clienteles the yield curve and the optimal maturity Structure of Government debt
National Bureau of Economic Research, 2013Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract: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.
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interest costs and the optimal maturity Structure of Government debt
The Economic Journal, 2008Co-Authors: Yves NosbuschAbstract:The Government faces a trade-off between the benefits of tax smoothing and an associated increase in expected interest costs when choosing its optimal debt portfolio. The article solves for optimal policies in an incomplete markets model where the Government uses two debt instruments, long-term and short-term non-contingent, nominal bonds. In this setup the basic prescription is to borrow long and invest short even though equilibrium expected interest costs are higher on long-term debt. The resulting welfare gains are close to what the Government could achieve with complete markets. Significant welfare gains are possible even in the presence of leverage constraints. Copyright © 2008 The Author(s).
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interest costs and the optimal maturity Structure of Government debt
The Economic Journal, 2008Co-Authors: Yves NosbuschAbstract:The Government faces a trade-off between the benefits of tax smoothing and an associated increase in expected interest costs when choosing its optimal debt portfolio. The article solves for optimal policies in an incomplete markets model where the Government uses two debt instruments, long-term and short-term non-contingent, nominal bonds. In this setup the basic prescription is to borrow long and invest short even though equilibrium expected interest costs are higher on long-term debt. The resulting welfare gains are close to what the Government could achieve with complete markets. Significant welfare gains are possible even in the presence of leverage constraints.
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preferred habitat and the optimal maturity Structure of Government debt
Social Science Research Network, 2008Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract:We propose a clientele-based theory of the optimal maturity Structure of Government debt. We assume a three-period economy in which clienteles correspond to generations of agents consuming in different periods. An optimal maturity Structure exists even in the absence of distortionary taxes, and consists in the Government replicating the actions of private agents not yet present in the market. The optimal fraction of long-term debt increases in the weight of the long-horizon clientele, provided that agents are more risk-averse than log. We examine how changes in maturity Structure affect equilibrium prices and show that in contrast to most representative-agent models, lengthening the maturity Structure raises the slope of the yield curve.
Antonio Mele - One of the best experts on this subject based on the ideXlab platform.
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the term Structure of Government debt uncertainty
Research Papers in Economics, 2019Co-Authors: Antonio Mele, Yoshiki Obayashi, Shihao YangAbstract:How valuable would it be to mitigate Government debt volatility? This paper introduces a model that accounts for the complex Structure of Government bond volatility and provides predictions on the fair value of Government bond variance swaps and derivatives referenced thereon. Our calibrated model predicts that expected volatilities frequently oscillate between episodes of backwardation and contango, a feature that is in stark contrast with dynamics observed in equity markets. We use the model in risk-management experiments and evaluate scenarios such as the reaction of the U.S. Treasury volatility curve to shocks including unanticipated Fed decisions or global economic imbalances. Unlike equity volatility dynamics, which may be specified exogenously without violating no-arbitrage conditions, Government bond volatility must be consistent with the dynamics of the whole yield curve. The paper provides quasi-closed form solutions that can readily be implemented despite the high-dimensional no-arbitrage restrictions that underlie the model dynamics.
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the term Structure of Government debt uncertainty
Social Science Research Network, 2019Co-Authors: Antonio Mele, Yoshiki Obayashi, Shihao YangAbstract:How valuable would it be to mitigate Government debt volatility? This paper introduces a model that accounts for the complex Structure of expected volatility in Government bond markets and provides predictions regarding the fair value of derivatives referenced to this expected volatility. The model predicts that, unlike equity markets, futures markets on Government bond volatilities frequently oscillate between episodes of backwardation and contango. This property helps explain events such as the reaction of the U.S. Treasury volatility curve to shocks including unanticipated Fed decisions or global economic imbalances. The paper provides quasi-closed form solutions that can readily be implemented despite the high-dimensional no-arbitrage restrictions that underlie the model dynamics.
Shihao Yang - One of the best experts on this subject based on the ideXlab platform.
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the term Structure of Government debt uncertainty
Research Papers in Economics, 2019Co-Authors: Antonio Mele, Yoshiki Obayashi, Shihao YangAbstract:How valuable would it be to mitigate Government debt volatility? This paper introduces a model that accounts for the complex Structure of Government bond volatility and provides predictions on the fair value of Government bond variance swaps and derivatives referenced thereon. Our calibrated model predicts that expected volatilities frequently oscillate between episodes of backwardation and contango, a feature that is in stark contrast with dynamics observed in equity markets. We use the model in risk-management experiments and evaluate scenarios such as the reaction of the U.S. Treasury volatility curve to shocks including unanticipated Fed decisions or global economic imbalances. Unlike equity volatility dynamics, which may be specified exogenously without violating no-arbitrage conditions, Government bond volatility must be consistent with the dynamics of the whole yield curve. The paper provides quasi-closed form solutions that can readily be implemented despite the high-dimensional no-arbitrage restrictions that underlie the model dynamics.
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the term Structure of Government debt uncertainty
Social Science Research Network, 2019Co-Authors: Antonio Mele, Yoshiki Obayashi, Shihao YangAbstract:How valuable would it be to mitigate Government debt volatility? This paper introduces a model that accounts for the complex Structure of expected volatility in Government bond markets and provides predictions regarding the fair value of derivatives referenced to this expected volatility. The model predicts that, unlike equity markets, futures markets on Government bond volatilities frequently oscillate between episodes of backwardation and contango. This property helps explain events such as the reaction of the U.S. Treasury volatility curve to shocks including unanticipated Fed decisions or global economic imbalances. The paper provides quasi-closed form solutions that can readily be implemented despite the high-dimensional no-arbitrage restrictions that underlie the model dynamics.
Stephane Guibaud - One of the best experts on this subject based on the ideXlab platform.
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bond market clienteles the yield curve and the optimal maturity Structure of Government debt
Review of Financial Studies, 2013Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract:We propose a clientele-based model of the yield curve and optimal maturity Structure of Government debt. Clienteles are generations of agents at different life cycle 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. But while a welfare-maximizing Government caters to clienteles, it does not accommodate fully their demand, and limits issuance of long-term bonds to a level where these earn negative expected excess returns.
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bond market clienteles the yield curve and the optimal maturity Structure of Government debt
National Bureau of Economic Research, 2013Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract: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.
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preferred habitat and the optimal maturity Structure of Government debt
Social Science Research Network, 2008Co-Authors: Stephane Guibaud, Yves Nosbusch, Dimitri VayanosAbstract:We propose a clientele-based theory of the optimal maturity Structure of Government debt. We assume a three-period economy in which clienteles correspond to generations of agents consuming in different periods. An optimal maturity Structure exists even in the absence of distortionary taxes, and consists in the Government replicating the actions of private agents not yet present in the market. The optimal fraction of long-term debt increases in the weight of the long-horizon clientele, provided that agents are more risk-averse than log. We examine how changes in maturity Structure affect equilibrium prices and show that in contrast to most representative-agent models, lengthening the maturity Structure raises the slope of the yield curve.
