Public Debt Maturity and Macroeconomic Policy Transmission

The macroeconomic effects of Treasury maturity policy

In this paper, Luca Zanotti, Hiroaki Endo, and Ramya Raghavan examine how the US Treasury systematically chooses the maturity structure of government debt, and what are the macroeconomic consequences of changing that maturity structure.

The authors first estimate a Treasury maturity rule using quarterly US data from 1982 to 2024. Changes in the weighted-average maturity of marketable Treasury debt are related to real GDP growth, public-debt growth and the yield-curve slope. They then augment the rule with professional forecasts, seasonal controls and sentiment indicators extracted from Treasury and Treasury Borrowing Advisory Committee (TBAC) documents using ridge regression. The unexplained component is treated as an exogenous maturity shock, whose macroeconomic effects are estimated through local projections. A theoretical debt-management model explains the estimated rule through maturity-specific price impacts of issuance.

Findings

• The Treasury shortens debt maturity when economic growth weakens or borrowing needs increase, relying on bills as a flexible “shock absorber.”
• Yield-curve conditions have little influence on maturity choices, consistent with the Treasury’s commitment to regular and predictable issuance.
• An unexpected shift toward longer-term debt raises long-term yields, corporate borrowing costs and mortgage rates.
• Tighter financial conditions reduce investment and consumption; real GDP falls by around 0.5% over three to five years.
• Financing government spending with longer-term debt reduces its expansionary effect, showing that debt maturity influences the size of fiscal multipliers.

The Treasury Maturity Rule
Authors: Luca Zanotti, Hiroaki Endo, Ramya Raghavan
From: Northwestern University

The maturity structure of fiscal stimulus

In this paper, Jochen Mankart, Morteza Ghomi, Rigas Oikonomou, and Romanos Priftis examine whether debt maturity is merely a debt-management choice or an important determinant of how strongly fiscal stimulus affects output and private demand. The authors combine two approaches:

1. Empirical analysis: State-dependent structural VARs and local projections applied to post-war US data (quarterly data from 1954Q3 to 2015Q4) distinguish spending shocks accompanied by increases in short-term versus long-term Treasury debt.
2. Theoretical analysis: An incomplete-markets New Keynesian model explains the results by allowing short-term government debt to provide households with liquidity for unexpected spending needs.

Findings

• Government spending financed with short-term debt produces substantially larger output multipliers, typically above one.
• Spending financed with long-term debt generally produces multipliers below one.
• The difference comes mainly from private consumption: short-term financing crowds in consumption, whereas long-term financing does not.
• The proposed mechanism is that short-term government securities provide valuable liquidity and insurance to households; increasing their supply therefore supports household spending.
• The maturity effect remains present under different monetary- and fiscal-policy regimes, implying that debt-management decisions can materially influence the effectiveness of fiscal stimulus.

Debt Maturity and Government Spending Multipliers
Authors: Jochen Mankart, Morteza Ghomi, Rigas Oikonomou, Romanos Priftis
From: Národná banka Slovenska, Bank of Spain, Catholic University of Louvain (UCL), European Central Bank