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dc.titleFiscal Rules and Optimal Currency Composition of Sovereign Debt in Emerging Economies
dc.contributor.authorValencia, Oscar
dc.contributor.authorRodriguez, Luis Alberto
dc.contributor.authorSiachoque, Juan Pablo
dc.contributor.orgunitFiscal Management Division
dc.coverageChile
dc.coverageColombia
dc.coverageMexico
dc.coverageLatin America and the Caribbean
dc.date.available2023-02-03T11:40:19
dc.date.issue2023-01-31T00:01:00
dc.description.abstractTotal public debt in most emerging markets grew before and after the pandemic with a sizable share in foreign currency. Along this trend, interest payments increased even in the presence of active fiscal rules in some countries. How should debt management of public debt be set under a fiscal rule? This document studies how optimal currency composition reduces the cost of debt and facilitates fiscal rule compliance but increases budget risk. Using a small open economy model, we provide evidence that optimal foreign currency holdings in Chile, Colombia, and Mexico depart considerably from observed; remaining low (high) in periods of favorable (adverse) external or domestic macroeconomic and financial conditions.
dc.format.extent22
dc.identifier.doihttp://dx.doi.org/10.18235/0004723
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Fiscal-Rules-and-Optimal-Currency-Composition-of-Sovereign-Debt-in-Emerging-Economies.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectSovereign Default
dc.subjectInterest Rate
dc.subjectDebt Management
dc.subjectPublic Debt
dc.subjectInflation
dc.subjectFiscal Rule
dc.subjectExchange Rate
dc.subject.jelcodeE61 - Policy Objectives • Policy Designs and Consistency • Policy Coordination
dc.subject.jelcodeE62 - Fiscal Policy
dc.subject.jelcodeH63 - Debt • Debt Management • Sovereign Debt
dc.subject.keywordssovereign debt management;scal rules;currency composition
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01341
idb.operationRG-T3751
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