Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248319 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-58
Publisher: 
Bank of Canada, Ottawa
Abstract: 
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 the expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory directly depend on the conditional nominal term premium, giving rise to an optimal debt maturity policy that is state dependent. In a calibrated macro-finance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.
Subjects: 
Fiscal policy
Interest rates
Monetary policy
JEL: 
E43
E44
E63
G12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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