Public debt management, monetary policy and financial institutions
Despite the large size of the Brazilian debt market, as well the large diversity of its bonds, the picture that emerges is of a market that has not yet completed its transition from the role it performed during the megainflation years, namely that of providing a liquid asset that provided positive real returns. This unfinished transition is currently placing the market under severe stress, as fears of a possible default from the next administration grow larger. This paper analyzes several aspects pertaining to the management of the domestic public debt. The causes for the extremely large and fast growth of the domestic public debt during the seven-year period that President Cardoso are discussed in Section 2. The main culprit is the very high and risky interest rate, with the recognition of old debts (hidden liabilities and state debt renegotiation) coming in second. Section 3 computes Value at Risk and Cash Flow at Risk measures for the domestic public debt. These risk measures show that the current composition of the public debt is very risky. The rollover risk is introduced in a mean-variance framework in Section 4, and the maturity structure evolution is discussed. The increased riskness was the cost to improve the maturity structure. Section 5 discusses a few issues pertaining to the overlap between debt management and monetary policy. Finally, Section 6 wraps up with policy discussion and policy recommendations.
|Date of creation:||Oct 2002|
|Date of revision:|
|Contact details of provider:|| Postal: Rua Marquês de São Vicente, 225, 22453-900 Rio de Janeiro, RJ|
Phone: 021 35271078
Fax: 021 35271084
Web page: http://www.econ.puc-rio.br
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.:
- Marcio Goes Pinto Garcia, 1994.
"Avoiding some costs of inflation and crawling toward hyperinflation: the case of the Brazilian domestic currency substitute,"
Textos para discussão
326, Department of Economics PUC-Rio (Brazil).
- Garcia, Marcio G. P., 1996. "Avoiding some costs of inflation and crawling toward hyperinflation: The case of the Brazilian domestic currency substitute," Journal of Development Economics, Elsevier, vol. 51(1), pages 139-159, October.
- Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, December.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Marcio Gomes Pinto Garcia, 1994. "Política monetária, depósitos compulsórios e inflação," Textos para discussão 323, Department of Economics PUC-Rio (Brazil).
When requesting a correction, please mention this item's handle: RePEc:rio:texdis:464. 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: ()
If references are entirely missing, you can add them using this form.