Research

This paper studies how the U.S. Treasury manages debt maturity and how these decisions affect aggregate economic activity. We estimate a Treasury maturity rule and find that the Treasury systematically shortens debt maturity when economic activity weakens or borrowing needs increase. We then identify a debt maturity shock as the residual from this rule. An unexpected shift toward longer-term debt issuance contracts economic activity by raising long-term borrowing costs, which spill over to broader financial markets and tighten financial conditions. Debt maturity also shapes the transmission of fiscal policy: counterfactual analysis shows that financing government spending at longer maturities dampens its expansionary effects.

Debt management decisions have macroeconomic effects comparable to those of monetary policy. Using high-frequency movements in Treasury futures around U.S. Treasury issuance announcements, we identify a Treasury policy shock—an unanticipated change in the supply of public debt across maturities. A shock that raises the five-year Treasury yield increases corporate borrowing rates, tightens financial conditions, and lowers industrial production. These effects are very similar to those of a conventional monetary policy shock. In this sense, the Treasury does monetary policy. In contrast to a monetary policy shock, our Treasury policy shock has minimal effects on short-term rates. This pattern arises because the Federal Reserve sterilizes the issuance of short-term debt, while only partially offsetting issuance at longer maturities.

This paper studies how buyer–seller bargaining powers shape monetary non–neutrality. When sellers have stronger bargaining power, the economy operates in an excess-supply regime and the Phillips curve is upward-sloping. When buyers have a stronger bargaining power, the economy operates in an excess-demand regime, and the Phillips curve is downward-sloping. Bargaining power smoothly parameterises the transition between the two regimes. In the knife-edge case, when the two powers cancel out, the Phillips curve becomes vertical and the economy approximates the flexible-price outcome. In this case, inflation is no longer costly. By allowing bargaining power to vary, the model places the insights of the general disequilibrium literature on an equilibrium footing.