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Managing Brazil’s Public Debt under the Original-Sin Hypothesis

Author

Listed:
  • Orlando Assunção Fernandes

    (FAAP)

  • Frederico Araújo Turolla

    (ESPM-SP / FGV-EDESP)

Abstract

Since public bond debt became a central element in the dynamic of public sector indebtedness in Brazil, its composition has played an important role in the conduction of macroeconomic policy. This article discusses the original-sinhypothesis formulated by Eichengreen and Hausman (1999) to evaluate the composition of Brazilian federal public debt. According to this hypothesis, the choice between indexation and duration takes the form of a trade-off, since the long-term, fixed-rate debt alternative that characterizes developed countries is not available to emerging countries. We present empirical evidence for Brazil, observing the 40-year evolution of federal bond debt since the creation of that market, which took place through the introduction of the instrument known as the ORTN in 1964.

Suggested Citation

  • Orlando Assunção Fernandes & Frederico Araújo Turolla, 2005. "Managing Brazil’s Public Debt under the Original-Sin Hypothesis," Brazilian Business Review, Fucape Business School, vol. 2(2), pages 155-171, July.
    • Handle: RePEc:bbz:fcpbbr:v:2:y:2005:i:2:p:155-171
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
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