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Journal of Political Economy Vol. 133 No. 12 2025

Managing Public Portfolios

Léo Aparisi de Lannoy; Anmol Bhandari1; David Evans2; Mikhail Golosov3; Thomas J. Sargent4

1 University of Minnesota System · 2 University of Oregon · 3 University of Chicago · 4 New York University

Abstract

We study optimal public portfolios in a class of macro-finance models that includes widely used specifications of households’ risk and liquidity preferences, market structures for financial assets, and trading frictions. An optimal portfolio hedges fluctuations in interest rates, primary surpluses, and income inequalities. We express an optimal portfolio in terms of statistics that are functions only of macro and financial market data. An application to US data shows that hedging interest rate risk plays a dominant role in shaping an optimal maturity structure of US government debt.

DOI
10.1086/738150
Volume
133
Issue
12
Pages
3903-3951
Language
en
Sources
openalex semanticscholar crossref

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