Research On Risk And Cost Management Of China' National Debt

Since the beginning of the issuing the national debt from 1981 in china, the scale of national debt is extending, and the status and the function of the national debt on the national economic is increasing. As a way to adjust the finance, it can be used to remedy the market-failure. So more and more researchers and policy-deciders recognized the importance of the national debt. But at the same time, a few of negative economic effects and contributions are emerging with development of the economic by the increasing scale of national debt, which put forward some problems of national debt management which should be resolved as soon as for our country. The researches not only in domestic but also the overseas about the national debt are focusing the moderate scale and the economic effect of national debt. Although the risk and cost management of national debt are involved in these researches, there are no researches which are systemic and continuous. So it is important to set up the national debt theory system of the risk and cost management which accord with the china situation under the moderate finance policy by the way to extend, innovate the modern theory.This thesis will set up national debt theory system of the the risk and cost management under the moderate finance policy and exploit the route of national debt management which adapt to the china situation by the risk and cost of national debt as the masterstroke. The main content are the evaluation of the national debt risk, the term structure of national debt, the effect of national debt to interest, the optimal issuing structure of national debt and so on.At first, the thesis reviews the correlative researches about the national debt management in the world, and analyses them in detail. According to the discussion of the default of every method, this thesis points out the research contents and innovations of the national debt risk and cost management.In the second chapter, this thesis analyses the risk of national debt using different risk indicators such as the dependence level of national debt, the burden rate of national debt, the debt repay rate of national debt and so on. The results show that the risk of china national debt is very prominent. According to the problem that traditional national debt management always neglects the market risk, this chapter sets up the VaR method to dynamic measure the risk of national debt referencing the measure method used by the private sector. In detail, this chapter uses the RiskMetrics model and GARCH model to measure the risk.In the third chapter, this thesis discusses the interest cost of Chinese national debt. This chapter points out that our country will pay a great deal of national debt cost because of the neglecting of the interest cost before. The main content is the cost compare of different term structure national debt under the"lend new pay back old"strategy using a sample. The result points out that it can reduce interest cost to increase the issueing of short term national debt, and that repay the cost until the maturity can reduce the cost. Meanwhile, this part analyses the effect of term structure of interest rate on the issuance of national debt, and points out that the issuance of short-term national debt can reduce the cost under the unceasing declining of interest rate term structure.In the fourth chapter, this thesis does empirical research of dynamic effect and mutual effect between the national debt and national debt interest. The data example includes the quarter sample of market interest, inflation rate, money supply from 1996-2006 and so on. At first, this part analyses the stationary of economic example data, and the results shown that the selected series data are all non-stationary. Based on the above results, this thesis analyses the dynamic effect and mutual effect between the national debt and interest using the VAR method, in which the Granger causality testing shows that burden rate of national debt, balance of national debt, inflation rate and money supply are all Granger causes which influenced interest rate. According to the analysis of VAR, this part points out that the national debt balance has remarkable effect and contribution on the interest by the impulse-response function analysis and variance decompose based on VEC model. Based on the above results, this paper considers it is important to strength the balance management of national debt, keep the interest stable to reduce the cost while strength the risk management.The fifth chapter proposes an issuing strategy of national debt synthetically considering the risk and cost of national debt based on the above researches. Based on the balance management of national debt, this chapter proposes a stochastic optimal model which will make the interest cost maximization. Because the selected interest rate term structure is the Vasicek model, the proposed model is a stochastic optimal model. So the thesis uses OLM to estimate the parameters of the model, and uses Monte Carlo simulation method to simulate the Vasicek term structure of interest rate, and translates the stochastic optimal model into the linear programming model. This chapter also does empirical research using some relative data, and shows that it's necessary to increase the issuance of short-term national debt under the balance management of national debt.At last, this thesis points out that it is common to use simple method in the national debt management, and always separate the cost and risk of national debt. This part discuss how to use the asset liability management framework under the national balance sheet to manage the national debt which always use by the financial institute. In the framework, the government income is assumed to be an exogenous variable which limit the complexity of the simulation of the future interest and exchange rate. In order to incorporate the government asset into the asset liability management framework, this framework use the financial features of those asset, namely their sensitivity to currency and interest rate changes, as the metrics to measure the cost and risk of the liabilities. Base on this analysis, this thesis presents an analytical framework for active national debt management that can integrate broader objectives and does not limit the restricts as some what stochastic process. At the same time, the analytical framework is based on three main pillars which consist of the generation of sparse trees of stochastic variables, the formulation and solution of a dynamic stochastic optimization model and the shaping and estimation of density functions of outcomes from the model.