Pienkowski, Alex, (2017), “Debt Limits and the Structure of Public Debt”, IMF, 22 May
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.
Relevant Posts
- Rozenov, Rossen, (2017), “Public Debt Sustainability Under Uncertainty : An Invariant Set Approach”, IMF Working Paper, 13 March
- Jaramillo, Laura, Mulas-Granados, Carlos, Kimani, Elijah, (2016), “The Blind Side of Public Debt Spikes”, IMF Working Paper, October