Improving the Government Debt Market Quality by Determining the Optimal Structure of Government Debt Portfolio
Recently, there is anupward tendency for switching external debts to domestic borrowings in many developing countries. While the domestic government bonds market development could reduce the sovereign exposure to currency risk, there are also potential risks faced by the government; namely: higher domestic interest rates, maturity mismatch, and crowding out effect to the private issuers. In this paper we develop a simple general equilibrium model to determine the optimal share for domestic and external government bonds in a sovereign country. We emphasize the important role of the demand side in forming the optimal structure of government bonds. We found that, at ceteris paribus, domestic government bond correlates negatively to external government bond at a constant rate. In addition, the back testing simulation results that the government has to reduce the level of its external debt. Through a dynamic recursive simulation, it is suggested that, in the long run, the Indonesian government must not hold any external debt while the Debt-to-GDP ratio shall be maintained at 16%-17% level.
|Date of creation:||Mar 2013|
|Contact details of provider:|| Postal: 2-15-45, Mita, Minato-ku, Tokyo 108-8345|
Web page: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/
More information through EDIRC
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.:
- Guimarães, Bernardo, 2007.
"Optimal external debt and default,"
CEPR Discussion Papers
6035, C.E.P.R. Discussion Papers.
- Guimaraes, Bernardo, 2008. "Optimal external debt and default," LSE Research Online Documents on Economics 3604, London School of Economics and Political Science, LSE Library.
- Bernardo Guimaraes, 2008. "Optimal External Debt and Default," CEP Discussion Papers dp0847, Centre for Economic Performance, LSE.
- Bernardo Guimaraes, 2007. "Optimal external debt and default," 2007 Meeting Papers 104, Society for Economic Dynamics.
- M. Arnone & A. F. Presbitero, 2007. "External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 115(2), pages 187-213.
- Presbitero, Andrea F. & Arnone, Marco, 2006. "External debt sustainability and domestic debt in Heavily Indebted Poor Countries," MPRA Paper 1396, University Library of Munich, Germany.
- Akemann, Michael & Kanczuk, Fabio, 2005. "Sovereign default and the sustainability risk premium effect," Journal of Development Economics, Elsevier, vol. 76(1), pages 53-69, February.
- Adam, Klaus, 2011. "Government debt and optimal monetary and fiscal policy," European Economic Review, Elsevier, vol. 55(1), pages 57-74, January.
- Adam, Klaus, 2010. "Government Debt and Optimal Monetary and Fiscal Policy," CEPR Discussion Papers 8064, C.E.P.R. Discussion Papers.
- Wang, Jianxin, 2007. "Foreign equity trading and emerging market volatility: Evidence from Indonesia and Thailand," Journal of Development Economics, Elsevier, vol. 84(2), pages 798-811, November. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:kei:dpaper:2012-038. 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: (Global COE Program Office)
If references are entirely missing, you can add them using this form.