Research

Working Papers


What debt maturities should governments issue when sovereign bonds serve as collateral? Standard Debt Management frameworks advocate for the issuance of long-term debt because of its hedging benefits for the government's budget. These frameworks are premised on the assumption that public debt is solely used to finance fiscal deficits. In practice, government bonds play a central role in financial markets as they are used as collateral to borrow liquidity. This paper introduces the collateral role of public debt into a standard Debt Management model to analyze its impact on the optimal structure of debt maturity. My main finding is that optimal maturity management involves an additional objective which is the provision of collateral and thus liquidity. This raises a policy trade-off for the government. While long-term debt allows to reduce the debt borrowing costs, short-term debt proves more effective to enhance liquidity provision. I show that the optimal maturity structure depends on the extent to which private liquidity relies on collateral. For a plausible calibration, the government finds it optimal to issue short-term bonds to accommodate liquidity provision. 

Presented at: Royal Economic Society Annual Conference (scheduled), 4th Warsaw Money-Macro-Finance Conference (2022), Doctoral Workshop on Quantitative Dynamic Economics (Konstanz, 2022).


The paper studies the transmission of a sovereign debt crisis in which a shift in sovereign default risk generates a recession and gives rise to a doom loop between sovereign distress and bank fragility with important amplification effects. The model is used to investigate the macroeconomic and welfare effects of altering the debt maturity structure during the debt crisis. My main finding is that shifting towards short-term maturities alleviates the bankers' capital losses on long-term bonds and moderates the recession, but at the cost of higher debt rollover costs and therefore higher debt levels in the future. In contrast, lengthening the maturity of debt is more effective to reduce the households' welfare losses as it reduces the rollover costs of debt, which results in a lower sovereign default risk and lower distortionary taxes.

Presented at: Royal Economic Society Annual Conference (2021), World Congress of the Econometric Society (2020), IIPF Annual Congress (2020) and CefES Conference (Milan, 2019).


We examine the effect of natural disasters on the size of the local public spending multiplier in U.S state economies. Using state-level military spending and disaster damages, we show that the local multiplier is significantly larger for states experiencing a natural disaster. We develop a simple framework with capital destruction shocks to interpret our estimates. We show that a rise in public expenditures during a disaster shock induces a larger output expansion because of a lower crowding-out of private investment. A disaster raises investment incentives to reconstruct capital. This makes households reduce more consumption and sacrifice less savings in response to a public spending shock. The stronger wealth effect translates in a larger rise in labor supply and a lower fall in investment, thereby strengthening the output expansion.


Work in Progress