Essays on government bond markets and macroeconomic stabilization

This thesis aims to identify the effects of macroeconomic stabilization efforts of the recent past, with a particular focus on government bond markets. The first two chapters investigate how Treasury markets react to changes in government debt supply and demand. The next two chapters widen the scope to examine macroeconomic stabilization in a broader context. Chapter 1 proposes an identification scheme for government bond supply shocks and analyses how the additional debt issuance affects the term structure of interest rates. It argues both theoretically and empirically that changes in the debt supply influence yields by affecting risk premia. Chapter 2 shifts its attention to the demand side of Treasury markets. It analyzes the effects of sudden shifts in investor demand for German and Italian government bonds. We aim to understand how different credit risk profiles of the countries impact these effects. Chapter 3 provides fresh insights into the absorption of idiosyncratic output shocks in the US and the Euro Area through private and public risk-sharing channels. It proposes a new empirical framework to trace how these risk-sharing channels evolved over time and attempts to explain the changes with some key macroeconomic and financial factors. Lastly, Chapter 4 examines the effectiveness of government spending during health crises. We provide evidence that during such exceptional times, higher government spending has a more potent, stimulative impact on the economy.