Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/235272
Authors: 
Jiang, Zhengyang
Lustig, Hanno
Nieuwerburgh, Stijn Van
Xiaolan, Mindy Z.
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 8902
Abstract: 
Governments face a trade-off between insuring bondholders and taxpayers. If the government fully insures bondholders by manufacturing risk-free zero-beta debt, then it cannot also insure taxpayers against permanent macroeconomic shocks over long horizons. Instead, taxpayers will pay more in taxes in bad times. Conversely, if the government fully insures taxpayers against adverse macro shocks, then the debt becomes risky, at least as risky as unlevered equity claim. As the world’s safe asset supplier, the U.S. appears to have escaped this trade-off thus far, whereas the U.K. has not.
Subjects: 
fiscal policy
term structure
debt maturity
convenience yield
JEL: 
E62
F34
G12
Document Type: 
Working Paper

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