IMF Working Papers

Debt Limits and the Structure of Public Debt

By Alex Pienkowski

May 22, 2017

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Alex Pienkowski. Debt Limits and the Structure of Public Debt, (USA: International Monetary Fund, 2017) accessed December 11, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Asset and liability management, Bonds, Debt limits, Exchange rates, Financial institutions, Fiscal policy, Fiscal stance, National accounts, Public debt, Return on investment

Keywords: Bond issuance, Bonds, Contract design, Debt level, Debt limits, Debt vulnerability, Exchange rate, Fiscal stance, Foreign currency, GDP shock, GDP volatility, GDP-linked bond, GDP-linked bonds, GDP-risk premium, Global, Interest rate, One-size-fits-all debt strategy, Return on investment, Sovereign debt, Sovereign default, State-contingent debt, WP

Publication Details

  • Pages:

    21

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2017/117

  • Stock No:

    WPIEA2017117

  • ISBN:

    9781484300657

  • ISSN:

    1018-5941