Public debt indexation and denomination, the case of Brazil: a comment

Rubens Cysne

No 579, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: In this work I analyze the model proposed by Goldfajn (2000) to study the choice of the denomination of the public debt. The main purpose of the analysis is pointing out possible reasons why new empirical evidence provided by Bevilaqua, Garcia and Nechio (2004), regarding a more recent time period, Önds a lower empirical support to the model. I also provide a measure of the overestimation of the welfare gains of hedging the debt led by the simpliÖed time frame of the model. Assuming a time-preference parameter of 0.9, for instance, welfare gains associated with a hedge to the debt that reduces to a half a once-for-all 20%-of-GDP shock to government spending run around 1.43% of GDP under the no-tax-smoothing structure of the model. Under a Ramsey allocation, though, welfare gains amount to just around 0.05% of GDP.

Date: 2005-03-01
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (3)

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Journal Article: Public debt indexation and denomination, the case of Brazil: a comment (2007)
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