Modelling Interest Payments for Macroeconomic Assessment

Abstract

In this paper we present a methodology designed to estimate the future path of the interest payments of central government. The basic idea is to represent in a compact way the joint dynamics of debt liabilities and interest payments as a function of four elements: the initial outstanding amounts of debt, the expected primary funding needs, the expected yield curves and the expected issuance strategy to be followed by the government. The procedure is amenable to scenario-based simulation and produces a detailed representation of the debt term structure. We provide results for the period 2015-2025.

Keywords: interest payments, yield curve, forward rates, debt dynamics

JEL Classification: E43, E44, E47, E63