Optimal public debt indexation in emerging economies

• Ano de defesa: 2025
• Autor(a) principal: Rocha, Herlandio Henrique Menezes
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Instituição de defesa: Biblioteca Digitais de Teses e Dissertações da USP
• Palavras-chave em Português: Debt denomination; Denominação da dívida; Dívida pública; Indexação; Indexation; Public debt
• Link de acesso: https://www.teses.usp.br/teses/disponiveis/12/12138/tde-28112025-195604/

This work examines the composition of public debt held in nominal, foreign- denominated, and indexed securities based on a tax smooth model that suggest a optimal proportion for each type of debt. Based on an established framework, we revisit the argument that key variables, such as inflation volatility and the relationship between government spending and inflation, play a crucial role in determining the composition of public debt. Using VAR-GARCH models as the methodological approach, it was possible to estimate the covariances between the variables of the model, allowing the identification of the theoretical optimum suggested for each proportion, as well as determining the influence of each covariance on the shares of public debt. Among the results, it was observed that a higher variance of inflation is associated with a lower share of nominal debt, while a higher covariance between government spending and inflation implies a greater share of nominal debt. In relation to foreign-denominated debt, we observed that when increases in public debt are followed by rises in the real exchange rate (currency appreciation), the proportion of foreign-denominated debt tends to decrease. Based on the results obtained and presented in this study, the evidence suggests that public administration considers the dynamics of the analyzed macroeconomic variables when making decisions about the optimal composition of public debt.