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Borrowing Short- or Long-Term: Does the Government Really Face a Trade-off? A Stochastic Macro Framework for Public Debt Management

PFM, Vol. 6 No. 2, (2006)

This paper considers public debt management as a component of a more general problem involving fiscal planning under uncertainty. This approach has the potential to result in a new optimal debt maturity structure. Using a stochastic simulation macro-econometric model, we show that a shorter debt maturity structure is generally less expensive and may also contribute to stabilize the budget balance as interest rates tend to decline when the economy is weak

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