Parameterizing Debt Maturity

IMF Working Papers, April 23, 2021

Source details

Purpose: Examine ways to summarize the maturity structure of public debts using a small number of parameters.
Core contribution: Identification of a unique parametric form—portfolios of bonds with exponential coupons—that does not arbitrarily restrict debt issuance.
Scope: Analysis of historical and recent government debt for multiple countries to evaluate parametric descriptions of maturity.

Novel dataset: All promised future payments for government debt compiled for:
- United States and United Kingdom from every month since 1869.
- More recent data for Peru, Poland, Egypt, and Nigeria.
Parametric approach: Portfolios of bonds with exponential coupons.
Comparison benchmark: The most popular alternative parametric form (unnamed here) is used for comparative accuracy.

Accuracy:
- The exponential-coupon parametric form "more accurately describes changes in debt maturity for these six countries" compared to the most popular alternative.
Historical interpretation:
- The exponential-coupon form "gives a quite different interpretation of historical debt maturity" relative to the alternative.
Cross-country consistency:
- Parameter estimates are "relatively similar across countries," enabling comparative analysis.
Applicability:
- The method can be applied to analyze past debt movements and to monitor changes in debt maturity where data are partial or incomplete.

Monitoring:
- Use the parametric form for ongoing monitoring of debt maturity structures, including in countries with incomplete data.
Analysis:
- Apply parameter estimates to reinterpret historical maturity patterns and to assess issuance practices without arbitrary restrictions.
Practical utility:
- Because parameter estimates show cross-country similarity, the approach supports comparative surveillance and diagnostic work on public-debt maturity.