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Public debt and risk premium: An analysis from an emerging economy

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Author Info

  • Helder Ferreira de Mendonça
  • Marcio Pereira Duarte Nunes

Abstract

Purpose – This analysis seeks to deal with the emerging economies and to reveal that, if the fiscal authority is accountable with a policy that stabilizes the public debt/GDP ratio, the consequence is a low Treasury bond risk premium. Design/methodology/approach – Based on the purpose of this paper, a theoretical model is developed and empirical evidence through an autoregressive distributed lag (ADL) model, taking into account the Brazilian experience, is made. Findings – The findings denote that domestic variables are responsible for determining the risk premium. Moreover, a correct management of the public debt and the use of primary surplus targets make for a good strategy for promoting a fall in the Treasury bond risk premium. Practical implications – Primary surplus and public debt/GDP ratio can be used as important tools for mitigating the Treasury bond risk premium. Originality/value – The results of the paper give some new insights about the management of fiscal policy for developing countries.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 38 (2011)
Issue (Month): 2 (May)
Pages: 203-217

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Handle: RePEc:eme:jespps:v:38:y:2011:i:2:p:203-217

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Related research

Keywords: Brazil; Debts; Fiscal policy; Interest rates; National economy;

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Cited by:
  1. Montes, Gabriel Caldas & Tiberto, Bruno Pires, 2012. "Macroeconomic environment, country risk and stock market performance: Evidence for Brazil," Economic Modelling, Elsevier, vol. 29(5), pages 1666-1678.

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