A Stochastic Simulation Framework for the Government of Canada's Debt Strategy
AbstractDebt strategy is defined as the manner in which a government finances an excess of government expenditures over revenues and any maturing debt issued in previous periods. The author gives a thorough qualitative description of the complexities of debt strategy analysis and then demonstrates that it is, in fact, a problem in stochastic optimal control. Although this formal definition is conceptually useful, the author recommends the use of simulation to help characterize the set of strategies that a government can use to fund its borrowing requirements. He then describes in detail a stochastic simulation framework, building from previous work in Bolder (2001, 2002); this framework forms one important element in the debt strategy decision-making process employed by the Government of Canada. The primary objective in constructing this stochastic simulation framework is to learn about the nature of the risk and cost trade-offs associated with different financing strategies. To this end, the paper includes a detailed description of the model; a set of possible debt cost and risk measures, including one potentially useful conditional risk measure; illustrative results under normal stochastic conditions; an analysis of the sensitivity of the results to various key model parameters; a novel approach to stress testing; and a possible framework for selecting a financing strategy, given assumptions about government risk preferences.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 03-10.
Length: 109 pages
Date of creation: 2003
Date of revision:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Debt management; Econometric and statistical methods; Economic models;
Find related papers by JEL classification:
- C0 - Mathematical and Quantitative Methods - - General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Johannes Holler, 2013. "Funding Strategies of Sovereign Debt Management: A Risk Focus," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 51-74, July.
- Renne, J-P., 2009. "Frequency-domain analysis of debt service in a macro-finance model for the euro area," Working papers 261, Banque de France.
- Melecky, Martin, 2010.
"Choosing the Currency Structure of Foreign-currency Debt: a Review of Policy Approaches,"
21268, University Library of Munich, Germany.
- Martin Melecky, 2012. "Choosing The Currency Structure Of Foreign‐Currency Debt: A Review Of Policy Approaches," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(2), pages 133-151, 03.
- David Jamieson Bolder & Tiago Rubin, 2007. "Optimization in a Simulation Setting: Use of Function Approximation in Debt Strategy Analysis," Working Papers 07-13, Bank of Canada.
- Hans J Blommestein & Anja Hubig, 2012. "Is the standard micro portfolio approach to sovereign debt management still appropriate?," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 141-155 Bank for International Settlements.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.