Luca Zanotti

This paper studies how the U.S. Treasury manages debt maturity and how these decisions affect aggregate economic activity. We estimate a Treasury maturity rule and find that the Treasury systematically shortens debt maturity when economic activity weakens or borrowing needs increase. We then identify a debt maturity shock as the residual from this rule. An unexpected shift toward longer-term debt issuance contracts economic activity by raising long-term borrowing costs, which spill over to broader financial markets and tighten financial conditions. Debt maturity also shapes the transmission of fiscal policy: counterfactual analysis shows that financing government spending at longer maturities dampens its expansionary effects.

We study how the shale revolution and the U.S. transition from petroleum importer to net exporter have changed the macroeconomic effects of oil shocks. Using oil supply news shocks identified from OPEC announcements, a time-varying model of the U.S. macroeconomy shows that the contractionary effects have weakened over time and eventually given way to an expansion. State-dependent local projections link this change to the U.S. petroleum trade balance. The improvement does not reflect a mechanical increase in aggregate net exports. Instead, consumption and equity valuations respond more favorably as the United States approaches exporter status, including in energy-intensive sectors. A counterfactual analysis of the 2022 oil-price surge implies sharply different paths for U.S. activity, prices, and monetary policy under the propagation mechanisms prevailing in the early 2000s and early 2020s.

Debt management decisions have macroeconomic effects comparable to those of monetary policy. Using high-frequency movements in Treasury futures around U.S. Treasury issuance announcements, we identify a Treasury policy shock—an unanticipated change in the supply of public debt across maturities. A shock that raises the five-year Treasury yield increases corporate borrowing rates, tightens financial conditions, and lowers industrial production. These effects are very similar to those of a conventional monetary policy shock. In this sense, the Treasury does monetary policy. In contrast to a monetary policy shock, our Treasury policy shock has minimal effects on short-term rates. This pattern arises because the Federal Reserve sterilizes the issuance of short-term debt, while only partially offsetting issuance at longer maturities.

We document a new fact: conditional on inflation and output, the Federal Reserve lowers the policy rate when the U.S. public debt-to-GDP ratio increases. To explain this pattern, we develop and estimate a New Keynesian model with shocks to households' demand for public debt. These shocks generate a negative comovement between public debt and the natural rate, defined as the real interest rate that would prevail under flexible prices. Assuming that the Federal Reserve adjusts its policy rate in line with the natural rate, the model rationalizes the negative relationship between debt and the policy rate. Two complementary exercises support this mechanism. First, we show that shocks to the demand for public debt are a key driver of business cycle fluctuations. Second, we construct a debt-informed measure of the natural rate using a time-varying parameter vector autoregression. When this measure is included in the policy rule, an increase in the debt-to-GDP ratio no longer reduces the policy rate.