Fiscal Dominance and the Optimal Maturity Structure of Sovereign Debt
Subhadeep HaldarISI, Delhi
We compile a unique granular-level dataset on Indian public debt consisting of central government security-level data from 1999 to 2022. Our analysis draws on data from around 8000 marketable dated securities issued by the central government and applies the Hall and Sargent (1997, 2011) methodology to provide a comprehensive overview of debt dynamics, focusing on the maturity distribution and the associated interest cost burden. We find a significant negative relationship between the short rate and average maturity and a significant positive relationship emerges between average maturity and debt-GDP. Using a static theoretical model, we show how these findings can be related to the respective dominance regime the monetary-fiscal authorities are in.
(Joint work Chetan Ghate and Piyali Das).