Public Debt Management in Brazil
This Paper derives the optimal composition of the Brazilian public debt by looking at the relative impact of the risk and cost of alternative debt instruments on the probability of missing the stabilization target. This allows to price risk against the expected cost of debt service and thus to find the optimal combination along the trade-off between cost and risk minimization. The optimal debt structure is a function of the expected return differentials between debt instruments, of the conditional variance of debt returns and of their covariances with output growth, inflation, exchange-rate depreciation and the Selic rate. We estimate the relevant covariances by: i) exploiting the daily survey of expectations; ii) simulating a small structural model of the Brazilian economy under different shocks; iii) estimating the unanticipated components of the relevant variables with forecasting regressions. The empirical evidence strongly supports the funding strategy of Brazilian Treasury in 2003 of relying heavily on fixed-rate LTN bonds. It also supports its recent decision to revitalize the market for price-indexed bonds with the new NTN-B program of IPCA indexation. Though decreasing, the exposure to exchange rate risk appears too large suggesting that more efforts should be made to reduce funding in foreign currencies.
|Date of creation:||Mar 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
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.:
- Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, March.
- Persson, Mats & Persson, Torsten & Svensson, Lars E O, 1996.
"Debt, Cash Flow and Inflation Incentives: A Swedish Example,"
CEPR Discussion Papers
1488, C.E.P.R. Discussion Papers.
- Persson, Mats & Persson, Torsten & Svensson, Lars E.O., 1997. "Debt, cash flow and inflation incentives: A Swedish example," Seminar Papers 613, Stockholm University, Institute for International Economic Studies.
- Persson, M & Persson, T & Svensson, L-E-O, 1996. "Debt, Cash Flow and Inflation Incentives : A Swedish Example," Papers 613, Stockholm - International Economic Studies.
- Mats Persson & Torsten Persson & Lars E. O. Svensson, 1996. "Debt, Cash Flow and Inflation Incentives: A Swedish Example," NBER Working Papers 5772, National Bureau of Economic Research, Inc.
- Bevilaqua, Alfonso S. & Garcia, Marcio G. P., 2000.
"Debt management in Brazil : evaluation of the Real Plan and challenges ahead,"
Policy Research Working Paper Series
2402, The World Bank.
- Bevilaqua, Afonso S & Garcia, Marcio G P, 2002. "Debt Management in Brazil: Evaluation of the Real Plan and Challenges Ahead," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 15-35, January.
- Afonso S. Bevilaqua & Márcio Gomes Pinto Garcia, 1999. "Debt management in Brazil: evaluation of the Real Plan and challenges ahead," Textos para discussão 408, Department of Economics PUC-Rio (Brazil).
- Carlo Ambrogio Favero & Francesco Giavazzi, . "Why are Brazil´s Interest Rates so High?," Working Papers 224, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Márcio Gomes Pinto Garcia, 2002. "Public debt management, monetary policy and financial institutions," Textos para discussão 464, Department of Economics PUC-Rio (Brazil).
- Ilan Goldfajn, 1998.
"Public Debt Indexation and Denomination; The Case of Brazil,"
IMF Working Papers
98/18, International Monetary Fund.
- Goldfajn, Ilan, 2000. "Public Debt Indexation and Denomination: The Case of Brazil," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(1), pages 43-56, February.
- Ilan Goldfajn, 1998. "Public Debt Indexation and Denomination: The Case of Brazil," Working Papers Central Bank of Chile 27, Central Bank of Chile.
- Alessandro Missale, . "Optimal Debt Management with a Stability and Growth Pact," Working Papers 166, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Alessandro Missale & Elisabetta Falcetti, .
"Public Debt Indexation and Denomination with and Indipendent Central Bank,"
169, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Falcetti, Elisabetta & Missale, Alessandro, 2002. "Public debt indexation and denomination with an independent central bank," European Economic Review, Elsevier, vol. 46(10), pages 1825-1850, December.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4293. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.