Speaker: Galo Nuño, Banco de España
We characterize the optimal debt-maturity management of an impatient government in a small open-economy. The Government issues a continuum of finite-life bonds that differ in their maturity. It takes into account the price impact of each issuance. The optimal issuance of any bond equals the product of the liquidity coefficient times the difference between the market price and the domestic valuation. This property holds in presence of income or interest-rate risk and the option to default. The model sheds light on the different forces that shape an optimal maturity distribution.