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Working Paper
Central bank preparedness for market-functioning asset purchases as a consideration for long-run balance sheet composition
Edge, Rochelle M.; Li, Dan (2025-09-05)
This paper proposes an approach to enhance the Federal Reserve's readiness to undertake market-functioning asset purchases during Treasury market disruptions. It notes that by tilting the SOMA Treasury portfolio toward bills rather than maintaining a maturity structure proportionate to that of outstanding Treasury debt—often viewed as the most neutral portfolio—the Fed can create a larger volume of reinvestments each month that can serve as a “war chest” for undertaking market-functioning asset purchases. This structure of the SOMA Treasury portfolio enables market-functioning asset ...
Finance and Economics Discussion Series , Paper 2025-077

Working Paper
Optimal time-consistent government debt maturity
Debortoli, Davide; Yared, Pierre; Nunes, Ricardo (2016-05-17)
The current literature on a government's optimal debt maturity structure contends that by purchasing short-term assets and selling long-term debt, it is possible to fully insulate the economy against fiscal shocks. The required short and long positions are large relative to GDP and constant. The market value of debt adjusts automatically and the constant debt positions and fluctuating bond prices insulate against potential shocks. However, achieving the goal of averting future shocks depends on the government perfectly committing to the future fiscal policy, for without this sustained ...
Working Papers , Paper 16-4

Report
A Framework for Studying the Monetary and Fiscal History of Latin America, 1960–2017
Kehoe, Timothy J.; Sargent, Thomas J.; Nicolini, Juan Pablo (2020-07-21)
We develop a conceptual framework for analyzing the interactions between aggregate fiscal policy and monetary policy. The framework draws on existing models that analyze sovereign debt crises and balance-of-payments crises. We intend this framework as a guide for analyzing the monetary and fiscal history of a set of eleven major Latin American countries—Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela—from the 1960s until now.
Staff Report , Paper 607

Report
Beyond thirty: Treasury issuance of long-term bonds from 1953 to 1965
Garbade, Kenneth D. (2017-01-01)
Ever since the emergence of regular and predictable issuance of coupon-bearing Treasury debt in the 1970s, thirty years has marked the outer boundary of Treasury bond maturities. However, longer-term bonds were not unknown in earlier years. Seven such bonds, including one with a forty-year term, were issued between 1955 and 1963. This paper examines the circumstances that led to the issuance of these seven bonds.
Staff Reports , Paper 806

Working Paper
The (Unintended?) Consequences of the Largest Liquidity Injection Ever
Crosignani, Matteo; Fonseca, Luis; Faria-e-Castro, Miguel (2017-01)
We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank?s three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance ...
Finance and Economics Discussion Series , Paper 2017-011

Working Paper
Optimal Taxation with Endogenous Default under Incomplete Markets
Pouzo, Demian; Presno, Ignacio (2020-08-20)
How are the optimal tax and debt policies affected if the government has the option to default on its debt? We address this question from a normative perspective in an economy with noncontingent government debt, domestic default and labor taxes. On one hand, default prevents the government from incurring future tax distortions that would come along with the service of the debt. On the other hand, default risk gives rise to endogenous credit limits that hinder the government's ability to smooth taxes. We characterize the fiscal policy and show how the option to default alters the near-unit ...
International Finance Discussion Papers , Paper 1297

Report
The Monetary and Fiscal History of Brazil, 1960-2016
Kehoe, Patrick J.; Ayres, Joao Luiz; Guillen, Diogo; Garcia, Marcio (2018-12-20)
Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period ...
Staff Report , Paper 575

Journal Article
COVID-19: Fiscal Implications and Financial Stability in Developing Countries
Grittayaphong, Praew; Restrepo-Echavarria, Paulina (2023-07-14)
The COVID-19 pandemic has been unlike any other crisis that we have experienced in that it hit all economies in the world at the same time, compromising the risk-sharing ability of nations. At the onset of the pandemic, the World Bank (WB) and the International Monetary Fund (IMF) jointly pledged 1.16 trillion U.S. dollars to help emerging economies deal with COVID-19. Would this amount have been enough to preserve financial stability in a worst case scenario, and what were the fiscal implications of the pandemic? In this article we aim to answer these questions by documenting the size of the ...
Review , Volume 105 , Issue 3 , Pages 137-149

Working Paper
The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’?
Dias, Daniel A.; Richmond, Christine; Wright, Mark L. J. (2014-05-09)
The stock of sovereign debt is typically measured at face value. Defined as the undiscounted sum of future principal repayments, face values are misleading when debts are issued with different contractual forms or maturities. In this paper, we construct alternative measures of the stock of external sovereign debt for 100 developing countries from 1979 through 2006 that correct for differences in contractual form and maturity. We show that our alternative measures: (1) paint a very different quantitative, and in some cases also qualitative, picture of the stock of developing country external ...
Working Paper Series , Paper WP-2014-5

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