A Model of Russian Government Debt Dynamics

Abstract

The article considers a stochastic model of government borrowing dynamics that uses the Ricardian tradition of analyzing public debt and seignorage. Substantial analogies are established between the macroeconomic analysis of monetary processes, on the one hand, and the theory of financial options and debt, on the other. The model allows identifying the reasons for the 1998 default on Russian domestic debt based on actual data.