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Modelling the Sovereign Debt Strategy: A Practical Primer

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Listed:
  • Nicolas Audet
  • Adam Epp
  • Jeffrey Gao
  • Joe Ning

Abstract

This paper provides a primer on the role of debt modelling in developing a sovereign debt issuance strategy, and how the policy objectives of a sovereign debt manager influence design decisions within their models. The insights provided here are supported by current and past uses of the Canadian Debt Strategy Model, which is a key component of Canada’s process to set its annual Debt Management Strategy and Medium-Term Debt Strategy. We address specific challenges that issuers of public debt often face. Those challenges include defining an appropriate objective function, specifying a strategy adaptable to an uncertain economic environment, operating within computational limitations and integrating qualitative considerations about liquidity and the needs of the investor base with quantitative assessments of costs and risks.

Suggested Citation

  • Nicolas Audet & Adam Epp & Jeffrey Gao & Joe Ning, 2025. "Modelling the Sovereign Debt Strategy: A Practical Primer," Discussion Papers 2025-16, Bank of Canada.
    • Handle: RePEc:bca:bocadp:25-16
    DOI: 10.34989/sdp-2025-16
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    References listed on IDEAS

    as
    1. Jarocinski, Marek, 2010. "Conditional forecasts and uncertainty about forecast revisions in vector autoregressions," Economics Letters, Elsevier, vol. 108(3), pages 257-259, September.
    2. Hans J. Blommestein & Anja Hubig, 2012. "A Critical Analysis of the Technical Assumptions of the Standard Micro Portfolio Approach to Sovereign Debt Management," OECD Working Papers on Sovereign Borrowing and Public Debt Management 4, OECD Publishing.
    3. Nicolas Audet & Joe Ning & Adam Epp & Jeffrey Gao, 2025. "The Dynamic Canadian Debt Strategy Model," Technical Reports 127, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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