2003. т. 7. №3

The Russian (1998) default clearly outlined several questions concerning risks on the market of government debts, their assessment by private investors in the process of lending to the government. It highlighted the importance of the problem of debt sustainability and the government reliability as a borrower. These and more questions arise in the short run, and long run consequences notwithstanding, the plausible answers has to be consistent with the rational behavior of investors on fi­nancial market. This approach meets some methodological difficulties on the macrolevel however, due to nontradability of the total government debt outstanding (macrodebt, in short), for the latter cannot be sold or bought as a whole. But analo­gies with the debt instruments trading remain sound, if proper relations were estab­lished between debt, borrowing and money in the short run on the macrolevel.
Stochastic seigniorage, government debt and borrowing dynamics in the short run are modeled in the context of a transition economy. Rational investors assessing market risks, hedge against them and construct riskless portfolios of seigniorage and debts. Risk-neutral asset valuation made it possible to formulate equilibrium condi­tions for the debt sustainability. Lending to the government is considered as a per­petual American call option that is optimized with respect to seigniorage without defaulting on the debt outstanding. The model is applied to the August 1998 domes­tic debt default in Russia in order to determine short-run effects of seigniorage upon the government debt sustainability