## 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](https://www.imf.org/en/publications/wp/issues/2016/12/30/public-debt-indexation-and-denomination-the-case-of-brazil-2503)

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## Bibliographic details
- Authors: Ilan Goldfajn
- Published: February 1, 1998
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451922806.001

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### 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

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## Content in this bundle

- **Public Debt Indexation and Denomination: The Case o Brazil -WP/98/18**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/public-debt-indexation-and-denomination-the-case-of-brazil-2503_