Seminar

CANCELLED BECAUSE OF CORONAVIRUS - Seminar: A convenient truth: The convenience yield, low interest rates and implications for fiscal policy

On Tuesday April 14th 2020, Denis Bonam (DNB) will give a presentation titled: "A convenient truth: The convenience yield, low interest rates and implications for fiscal policy"

Date
April 14, 2020
Time
13:00 - 14:00
Location
CPB-office, Bezuidenhoutseweg 30, The Hague (Room 3 - Braamzaal)
Presentation
Denis Bonam (DNB)
Discussant
Nicoleta Ciurila (CPB)
Working language
English

Some countries currently face historically low interest rates on government debt due to a positive ‘convenience yield’ arising from an excess demand for safe and liquid assets. This low interest rate environment has raised interest in the role of fiscal stabilization policy. We study the convenience yield and its implications for fiscal policy in a New Keynesian model where households derive utility from government bonds. We find that the convenience yield expands the set of sustainable fiscal policies and renders countercyclical fiscal policy successful in stabilizing business cycle fluctuations. Conveniently, fiscal policies that stabilize output rather than debt are feasible, welfare enhancing and can even reduce the risk of exploding debt dynamics if the convenience yield is positive.

Contacts

Foto Simone Pailer
Simone Pailer +31 6 21856579 Read more