{
  "title": "Debt Limits and the Structure of Public Debt",
  "publication": "IMF Working Papers, May 22, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/05/22/debt-limits-and-the-structure-of-public-debt-44913",
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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.",
  "sections": [
    {
      "heading": "Summary and key findings",
      "content": "- The 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.\n- Calibrating the model to different country fundamentals shows that there is no one-size-fits-all approach to optimal instrument design.\n- Example findings:\n  - Low income countries may find benefit in issuing local currency debt.\n  - In advanced economies debt tolerance can be substantially enhanced through issuing GDP-linked bonds.\n- By examining the marginal impact of these instruments, the paper provides insight into the optimal portfolio composition."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Tailor debt instrument design to country fundamentals rather than applying a single universal strategy.\n- Consider local currency issuance for low income countries to raise the sovereign debt limit.\n- Consider GDP-linked bonds for advanced economies to substantially enhance debt tolerance.\n- Use marginal-impact analysis of instrument types to guide optimal portfolio composition."
    },
    {
      "heading": "Methodology and scope",
      "content": "- The paper develops a tractable model that jointly considers currency denomination and indexation to GDP to evaluate effects on sovereign debt limits.\n- Results are obtained by calibrating the model to different country fundamentals to assess heterogeneous impacts across country types.\n- The analysis focuses on the marginal impact of specific instrument features on debt tolerance and portfolio choice."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subject: Asset and liability management, Bonds, Debt limits, Exchange rates, Financial institutions, Fiscal policy, Fiscal stance, National accounts, Public debt, Return on investment\n- 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\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/05/22/debt-limits-and-the-structure-of-public-debt-44913\n\n---\n\n Content in this bundle\n\n- Debt Limits and the Structure of Public Debt\n  - Debt Limits and the Structure of Public Debt (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Debt Limits and the Structure of Public Debt (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/05/22/debt-limits-and-the-structure-of-public-debt-44913"
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    "Authors: Alex Pienkowski",
    "Published: May 22, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484300657.001",
    "The 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.",
    "Calibrating the model to different country fundamentals shows that there is no one-size-fits-all approach to optimal instrument design.",
    "Example findings:",
    "By examining the marginal impact of these instruments, the paper provides insight into the optimal portfolio composition.",
    "Tailor debt instrument design to country fundamentals rather than applying a single universal strategy.",
    "Consider local currency issuance for low income countries to raise the sovereign debt limit.",
    "Consider GDP-linked bonds for advanced economies to substantially enhance debt tolerance.",
    "Use marginal-impact analysis of instrument types to guide optimal portfolio composition.",
    "The paper develops a tractable model that jointly considers currency denomination and indexation to GDP to evaluate effects on sovereign debt limits.",
    "Results are obtained by calibrating the model to different country fundamentals to assess heterogeneous impacts across country types.",
    "The analysis focuses on the marginal impact of specific instrument features on debt tolerance and portfolio choice.",
    "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",
    "**Debt Limits and the Structure of Public Debt**"
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