Essays on finance and macroeconomics

This dissertation investigates questions at the intersection of finance and macroeconomics. A central theme is the interaction of macroeconomic policies and outcomes with asset prices.;The first part of the dissertation studies the optimal maturity structure of government debt in the face of incomplete markets. It shows how a policy that leads to optimal tax smoothing across states and over time generally does not minimize interest costs on the government's debt portfolio. The analysis instead suggests that the government should borrow using long-term debt and invest in short-term debt even though in equilibrium the expected rate of return on long-term debt is higher than the expected rate of return on short-term debt. The welfare gains that the government can achieve with two noncontingent bonds of different maturities are close to what a complete set of state contingent securities would allow.;The second part of the dissertation, written jointly with Jens Hilscher, investigates the macroeconomic determinants of default and yield spreads on the external debt of emerging market sovereign borrowers. It presents a model in which default risk is determined by the level and the volatility of an index of macroeconomic fundamentals. The empirical analysis shows that the volatility of terms of trade has a statistically and economically significant effect on spreads and default probabilities. The ratio of debt to GDP explains variation mainly in the time series of spreads rather than in the cross section. A variable summarizing a country's recent default history has additional explanatory power.;The final part of the dissertation, written jointly with John Y. Campbell, turns to the effects of government intergenerational risksharing arrangements on equilibrium asset prices. It shows how a social security system that optimally shares risks across generations reduces precautionary saving and increases the risk-bearing capacity of the economy. Under plausible conditions, such a system leads to an increase in the riskless interest rate, a fall in the price of physical capital, and a fall in the risk premium on physical capital.