The Cost Effectiveness of the Uk's Sovereign Debt Portfolio

29 Pages Posted: 3 Aug 2005

See all articles by Patrick Coe

Patrick Coe

Carleton University - Department of Economics

M. Hashem Pesaran

University of Southern California - Department of Economics; University of Cambridge - Trinity College (Cambridge)

Shaun Vahey

University of Cambridge - Faculty of Economics and Politics; Reserve Bank of New Zealand - Research

Abstract

This paper provides a recursive empirical analysis of the scope for cost minimization in public debt management when the debt manager faces a given short-term interest rate dictated by monetary policy as well as risk and market impact constraints. It simulates the 'real-time' interest costs of alternative portfolios for UK government debt between April 1985 and March 2000. These portfolios are constructed using forecasts of return spreads based on a recursive modelling procedure. While we find statistically significant evidence of predictability, the interest cost savings are quite small when portfolio shares are constrained to lie within historical bounds.

Suggested Citation

Coe, Patrick James and Pesaran, M. Hashem and Vahey, Shaun, The Cost Effectiveness of the Uk's Sovereign Debt Portfolio. Oxford Bulletin of Economics & Statistics, Vol. 67, No. 4, pp. 467-495, August 2005, Available at SSRN: https://ssrn.com/abstract=764828

Patrick James Coe (Contact Author)

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

M. Hashem Pesaran

University of Southern California - Department of Economics

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

University of Cambridge - Trinity College (Cambridge) ( email )

United Kingdom

Shaun Vahey

University of Cambridge - Faculty of Economics and Politics

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Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Reserve Bank of New Zealand - Research ( email )

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P.O. Box 2498
Wellington, 6011
New Zealand

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