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Debt Limits and the Structure of Public Debt
Author:
Alex Pienkowski
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 117
Language:
English
Publication Date:
22 May 2017
DOI:
https://doi.org/10.5089/9781484300657.001
ISBN:
9781484300657
ISSN:
1018-5941
Pages:
21
Keywords:
WP; exchange rate; foreign currency; interest rate; GDP-linked bond; Sovereign debt; debt limits; sovereign default; state-contingent debt; GDP-linked bonds; debt level; bond issuance; contract design; GDP shock; one-size-fits-all debt strategy; GDP-risk premium; GDP volatility; debt vulnerability; Fiscal stance; Return on investment; Bonds; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund