Public Debt Indexation and Denomination: The Case of Brazil

28 Pages Posted: 3 Aug 1998

See all articles by Ilan Goldfajn

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

Date Written: February 1998

Abstract

The paper models the optimal debt management strategy of the public sector when issuing nominal, price-level-indexed and foreign-denominated debt securities. The model predicts that the variance of inflation, the size of the public debt, the variance of the real exchange rate, and the correlation of inflation with public expenditures are the main determinants of public debt management. Using this framework, the paper analyzes the Brazilian experience with indexed debt in the last decade. In particular, it explains the large increase of indexed public debt in Brazil prior to the 1994 Real plan and, thereafter, the steady decline in its use.

JEL Classification: E58, H62

Suggested Citation

Goldfajn, Ilan, Public Debt Indexation and Denomination: The Case of Brazil (February 1998). IMF Working Paper No. 98/18. Available at SSRN: https://ssrn.com/abstract=97388 or http://dx.doi.org/10.2139/ssrn.97388

Ilan Goldfajn (Contact Author)

Gávea Investimentos ( email )

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Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

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