Debt Limits and the Structure of Public Debt
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Summary:
This paper provides a tractable framework to assess how the structure of debt instruments—specifically by currency denomination and indexation to GDP—can raise the debt limit of a sovereign. By calibrating the model to different country fundamentals, it is clear that there is no one-size-fits-all approach to optimal instrument design. For instance, low income countries may find benefit in issuing local currency debt; while in advanced economies debt tolerance can be substantially enhanced through issuing GDP-linked bonds. By looking at the marginal impact of these instruments, the paper also provides insight into the optimal portfolio compostion.
Series:
Working Paper No. 2017/117
Subject:
Asset and liability management Bonds Debt limits Exchange rates Financial institutions Fiscal policy Fiscal stance National accounts Public debt Return on investment
English
Publication Date:
May 22, 2017
ISBN/ISSN:
9781484300657/1018-5941
Stock No:
WPIEA2017117
Pages:
21
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