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Simulating the impact of state-contingent debt instruments on sovereign finances: An Excel toolkit

Best, Tom, Dielmann, Christopher, Greene, Meghan, Mohd Nor, Tania, (2017), “Simulating the impact of state-contingent debt instruments on sovereign finances: An Excel toolkit”, Vox Eu, 5 June

overeign state-contingent debt instruments (SCDIs) are instruments that link the issuer’s contractual debt service obligations to a pre-defined state variable, and are designed to alleviate pressure on sovereign finances in bad states of the world. While several previous studies (e.g. Barr et al. 2014, Blanchard et al. 2016, Sandleris et al. 2008) have conducted simulations of the potential impact of SCDIs on public debt, these papers have generally focused on individual designs of SCDIs, have only included one-period debt, abstracted from gross financing needs, or have made restrictive assumptions about the behaviour of interest rates and/or expectations for the state variable.

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