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Debt Management Objectives for a Small Open Economy

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  • Boothe, Paul
  • Reid, Bradford

Abstract

In this paper the authors examine the consequences of using cost minimization as the goal of public debt management in a small open economy (SOE). Authorities are assumed to minimize interest costs subject to constraints on their ability to refinance at different maturities, and the information conditioning expectations of future interest rates. A numerical simulation model and a highly disaggregated Canadian data set for the period 1967-87, are used in the analysis. The results presented indicate that, conditional on the SOE assumption, savings do result from following a cost-minimizing strategy. Savings decline as authorities are increasingly constrained in their refinancing choices. However, even the gains in moderately-constrained cases suggest that cost minimization is worthy of serious consideration by authorities. Copyright 1992 by Ohio State University Press.

Suggested Citation

  • Boothe, Paul & Reid, Bradford, 1992. "Debt Management Objectives for a Small Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 43-60, February.
    • Handle: RePEc:mcb:jmoncb:v:24:y:1992:i:1:p:43-60
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    Cited by:

    1. Coe, P. & Pesaran, M.H. & Vahey, S.P., 2000. "The Cost Efficiency of UK Debt Management: A Recursive Modelling Approach," Cambridge Working Papers in Economics 0005, Faculty of Economics, University of Cambridge.
    2. Mr. Khaled Hussein, 2001. "Is Foreign Debt Portfolio Management Efficient in Emerging Economies?," IMF Working Papers 2001/121, International Monetary Fund.
    3. Robert Brooks, 2005. "A Surplus Optimization Approach to Managing Municipal Debt," Public Finance Review, , vol. 33(2), pages 236-254, March.
    4. Lloyd-Ellis, Huw & Zhu, Xiaodong, 2001. "Fiscal shocks and fiscal risk management," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 309-338, October.
    5. De Broeck, Mark, 1997. "The financial structure of government debt in OECD countries: An examination of the time-consistency issue," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 279-301, July.
    6. Hussein, Khaled A. & de Mello, Luiz Jr., 2001. "Is foreign debt portfolio management efficient in emerging economies?," Journal of Development Economics, Elsevier, vol. 66(1), pages 317-335, October.
    7. Huw Lloyd-Ellis & Xiaodong Zhu, 2004. "Using Financial Market Information To Enhance Canadian Fiscal Policy," Working Paper 1041, Economics Department, Queen's University.

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