Public Debt Sustainability and Management in a Compound Option Framework

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Price:  $18.00

Author/Editor: Jorge A Chan-Lau, Andre Santos
Release Date: © January, 2010
ISBN : 978-1-45196-167-6
Stock #: WPIEA2010002
English
Stock Status: Available

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Description

This paper introduces the Asset and Liability Management (ALM) compound option model. The model builds on the observation that the public sector net worth in a multi-period setting corresponds to the value of an option on an option on total government assets. Hence, the ALM compound option model is better suited for analyzing and evaluating the risk profile of public debt than existing one-period models, and is especially useful for analyzing the soundness of exit strategies from the large fiscal expansions undertaken by G-20 countries in the wake of the recent financial crisis. As an illustration, the model is used to analyze the risk profile and sustainability of Australia's public debt under different policies.

Taxonomy

Economic policy , Fiscal policy




More publications in this series: Working Papers


More publications by: Jorge A Chan-Lau ; Andre Santos