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Public debt indexation and denomination, the case of Brazil: a comment

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  • Rubens Penha Cysne

    (Graduate School of Economics, Getulio Vargas Foundation (EPGE|FGV), Rio de Janeiro, RJ, Brazil)

Abstract

In this work I analyse the model proposed by Goldfajn to study the choice of the denomination of the public debt. The main purpose of the analysis is to point out possible reasons why new empirical evidence provided by Bevilacqua et al., regarding a more recent time period, gives less empirical support to the model. I also provide a measure of the overestimation of welfare gains from hedging the debt caused by the simplified time frame of Goldfajn's model. Assuming a time-preference parameter of 0.9, for instance, consumption gains associated with a hedge to the debt that reduces by half a one-time 20%-of-GDP shock to government spending run around 1.43% under the no-tax-smoothing structure of the model. Under a Ramsey allocation, though, consumption increases by just 0.05%. Copyright © 2007 John Wiley & Sons, Ltd.

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  • Rubens Penha Cysne, 2007. "Public debt indexation and denomination, the case of Brazil: a comment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 417-425.
    • Handle: RePEc:ijf:ijfiec:v:12:y:2007:i:4:p:417-425
    DOI: 10.1002/ijfe.334
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    References listed on IDEAS

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    Cited by:

    1. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2005. "Special interests and political business cycles," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 597, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    2. Araújo, Fabio & Issler, João Victor & Fernandes, Marcelo, 2005. "Estimating the stochastic discount factor without a utility function," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 583, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    3. Barbosa, Fernando de Holanda, 2005. "The contagion effect of public debt on monetary policy: the brazilian experience," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 591, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).

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