On the irrelevance of the maturity structure of government debt without commitment

This paper shows that if the timing of debt auctions within a period is sufficiently unfettered, any stochastic outcome path of real economic variables which can be achieved as an equilibrium of a game where a government has access to a rich debt structure can be achieved as an equilibrium of a game where the government can only issue one period debt. Likewise, any stochastic outcome path which is an equilibrium of a game with only one period debt is also an equilibrium of a game where longer maturity debt is feasible. Finally, two necessary and sufficient conditions on total gross flows between households and government and real economic variables are derived which determine whether there exists an incentive compatible timing structure for debt auctions. ∗Phelan, Federal Reserve Bank of Minneapolis. The author would like to thank Andrew Atkeson, Harold Cole, Patrick Kehoe, and Narayana Kocherlakota for many useful comments. The views expressed herein are the those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.