Scope for Cost Minimization in Public Debt Management: the Case of the UK
AbstractThis paper provides a framework for an empirical analysis of the scope for cost minimization in public debt management. It assumes that a debt manager aims at minimizing the expected cost of government’s debt portfolio for a given level of short term interest rate and subject to a number of risk and market impact constraints. The analysis is applied to the UK government debt over the period April 1985 to March 2000, by simulating “real time” interest costs of alternative portfolios constructed using monthly forecasts of return spreads based on recursive modelling (RM) procedure recently developed by Pesaran and Timmermann (1995, 2000), which limits the extent of data snooping. Statistically significant evidence of predictability of return spreads are provided before the introduction of reforms of the UK debt management system in 1995, although there seems to be little evidence of predictability once the post reform sample is included. Nevertheless, there appears to have been some scope for a small reduction in interest costs over the 1985-2000 period even if portfolio shares and their monthly changes are constrained to lie within historically observed upper and lower bounds in order to minimize the market impact effects of such changes.
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 Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0338.
Date of creation: Aug 2003
Date of revision:
Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm
Public debt management; cost minimization; recursive modelling; data snooping;
Find related papers by JEL classification:
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-CFN-2003-08-24 (Corporate Finance)
- NEP-EEC-2003-08-24 (European Economics)
- NEP-PBE-2003-08-24 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pesaran, M.H. & Timmermann, A., 1990.
"A Simple, Non-Parametric Test Of Predictive Performance,"
Cambridge Working Papers in Economics
9021, Faculty of Economics, University of Cambridge.
- Pesaran, M Hashem & Timmermann, Allan, 1992. "A Simple Nonparametric Test of Predictive Performance," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 561-65, October.
- Pesaran, M.H. & Timmermann, A., 1990. "A Simple Non-Parametric Test Of Predictive Performance," Papers 29, California Los Angeles - Applied Econometrics.
- Pesaran, M. H. & Timmermann, A., 1996.
"A Recursive Modelling Approach to Predicting UK Stock Returns',"
Cambridge Working Papers in Economics
9625, Faculty of Economics, University of Cambridge.
- Pesaran, M Hashem & Timmermann, Allan, 2000. "A Recursive Modelling Approach to Predicting UK Stock Returns," Economic Journal, Royal Economic Society, vol. 110(460), pages 159-91, January.
- Allan Timmermann & M. Hashem Pesaran, 1999. "A Recursive Modelling Approach to Predicting UK Stock Returns," FMG Discussion Papers dp322, Financial Markets Group.
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
- John Y. Campbell, 1995.
"Some Lessons from the Yield Curve,"
Harvard Institute of Economic Research Working Papers
1713, Harvard - Institute of Economic Research.
- Allan Timmermann & Halbert White & Ryan Sullivan, 1998.
"Data-Snooping, Technical Trading, Rule Performance and the Bootstrap,"
FMG Discussion Papers
dp303, Financial Markets Group.
- Ryan Sullivan & Allan Timmermann & Halbert White, 1999. "Data-Snooping, Technical Trading Rule Performance, and the Bootstrap," Journal of Finance, American Finance Association, vol. 54(5), pages 1647-1691, October.
- Sullivan, Ryan & Timmermann, Allan G & White, Halbert, 1998. "Data-Snooping, Technical Trading Rule Performance and the Bootstrap," CEPR Discussion Papers 1976, C.E.P.R. Discussion Papers.
- George J. Hall & Thomas J. Sargent, 1997. "Accounting for the federal government's cost of funds," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jul, pages 18-28.
- Shaun P. Vahey & Andreas Pick & Don M. Egginton, 2001.
""Keep it real!": A real-time UK macro data set,"
AccessEcon, vol. 28(18), pages A0.
- Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-30, December.
- Bohn, Henning, 1988. "Why do we have nominal government debt?," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 127-140, January.
- Marco Aiolfi & Carlo Ambrogio Favero, .
"Model Uncertainty, Thick Modelling and the predictability of Stock Returns,"
221, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Aiolfi, Marco & Favero, Carlo A, 2003. "Model Uncertainty, Thick Modelling and the Predictability of Stock Returns," CEPR Discussion Papers 3997, C.E.P.R. Discussion Papers.
- Engle, Robert F, 2000. "Dynamic Conditional Correlation - A Simple Class of Multivariate GARCH Models," University of California at San Diego, Economics Working Paper Series qt56j4143f, Department of Economics, UC San Diego.
- Pesaran, M. Hashem & Potter, Simon M., 1997.
"A floor and ceiling model of US output,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 21(4-5), pages 661-695, May.
- Pesaran, M.H. & Timmermann, A.G., 1992.
"A Generalisation of the Non-Parametric Henriksson-Merton Test of Market Timing,"
Cambridge Working Papers in Economics
9218, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Timmermann, Allan G., 1994. "A generalization of the non-parametric Henriksson-Merton test of market timing," Economics Letters, Elsevier, vol. 44(1-2), pages 1-7.
- Pesaran, M Hashem & Timmermann, Allan, 1995. " Predictability of Stock Returns: Robustness and Economic Significance," Journal of Finance, American Finance Association, vol. 50(4), pages 1201-28, September.
- Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
- D M Egginton & S G Hall, 1993. "An investigation of the effect of funding on the slope of the yield curve," Bank of England working papers 6, Bank of England.
- Pesaran, M. Hashem & Timmermann, Allan, 2004.
"Real Time Econometrics,"
IZA Discussion Papers
1108, Institute for the Study of Labor (IZA).
- Pesaran, M.H. & Timmermann, A., 2004. "‘Real Time Econometrics’," Cambridge Working Papers in Economics 0432, Faculty of Economics, University of Cambridge.
- Pesaran, M Hashem & Timmermann, Allan G, 2004. "Real Time Econometrics," CEPR Discussion Papers 4402, C.E.P.R. Discussion Papers.
- M. Hashem Pesaran & Allan Timmermann, 2004. "Real Time Econometrics," CESifo Working Paper Series 1169, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb).
If references are entirely missing, you can add them using this form.