Public Debt Indexation and Denomination: The Case of Brazil
IMF Working Papers, February 1, 1998
Source details
- Canonical URL
- Public Debt Indexation and Denomination: The Case of Brazil
Other formats
Bibliographic details
- Authors: Ilan Goldfajn
- Published: February 1, 1998
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451922806.001
Summary and research objective
- The paper models the optimal debt management strategy of the public sector when issuing nominal, price-level-indexed and foreign-denominated debt securities.
- The framework is used to analyze the Brazilian experience with indexed debt in the last decade, explaining:
- the large increase of indexed public debt in Brazil prior to the 1994 Real plan, and
- the steady decline in its use thereafter.
Main determinants of optimal public debt management (model predictions)
- The model predicts the following are the main determinants of public debt management:
- the variance of inflation,
- the size of the public debt,
- the variance of the real exchange rate,
- the correlation of inflation with public expenditures.
Key substantive findings
- Indexed instruments (price-level-indexed debt) are central to the analysis alongside nominal and foreign-denominated debt.
- The model links macroeconomic variances and correlations directly to the optimal composition and denomination of public debt.
- Historical application: the model provides an explanation for Brazil’s large increase in indexed public debt before the 1994 Real plan and its subsequent steady decline.
Subject areas and keywords
- Subjects: External debt, Financial regulation and supervision, Foreign exchange, Hedging, Inflation, Prices, Public debt, Real exchange rates
- Keywords: Brazil, composition system estimation, debt, debt holder, denominated debt, exchange rate, Hedging, indexation, indexation mechanism, indexed debt, Inflation, nominal debt, Public debt, Real exchange rates, real value, WP
Content in this bundle
- Public Debt Indexation and Denomination: The Case o Brazil -WP/98/18