Short-term debt financing raises government spending multipliers
Short-term borrowing produces larger government spending multipliers than long-term borrowing, European Central Bank research finds. US estimates for Q3 1954–Q4 2015 put the four-quarter output multipliers at 1.85 and 0.42, respectively.
Consumption drives the maturity gap
Morteza Ghomi, Jochen Mankart, Rigas Oikonomou and Romanos Priftis use proxy structural vector autoregressions and local projections to study US spending shocks.
Their baseline quarterly sample covers Q3 1954–Q4 2015; short-term debt means maturities below one year.
Short-term financing generates an impact output multiplier of 1.48, against 1.08 for long-term financing.
After 12 quarters, the respective cumulative multipliers are 1.91 and 0.55. Consumption explains much of the gap: its impact multipliers are 1.16 and -0.03. Results survive controls for wages, interest rates and debt levels, as well as alternative samples.
The findings represent the authors' views, not necessarily those of the European Central Bank (ECB).
Liquid bonds support household spending
The authors' incomplete-markets New Keynesian model gives short-term bonds liquidity and safety services: households use them to meet unexpected spending needs.
More short-term debt relaxes expenditure constraints and reduces precautionary saving.
With interest rate smoothing, model impact output multipliers are 2.0 under short-term financing and 0.5 under long-term financing; the former remains above one for approximately eight quarters.
The maturity gap persists with labor income taxes, partial liquidity from long bonds and alternative policy regimes.
Maturity matters, policy conditions qualify
The authors link debt management to stimulus transmission, beyond financing costs and refinancing risk.
Under a standard Taylor rule, both model multipliers fall below one, despite the maturity gap.
They leave richer household wealth distributions and realistically risky long bonds to future research.