Jozef Vuchelen

Debt management in a small open economy: A theoretical and an empirical study for Belgium

Abstract This article analyzes the effects of debt management and its consequence for the control of base money in a small open economy (Belgium). The study compares the effects obtained from a small theoretical model with the results of a larger empirical model. The theoretical model focuses on the financing of government by money operation, on the bond rate, and on the international reserve of the Central Bank. The empirical model is a medium-term one, including the demand and the supply sectors of the economy and permitting simultaneous analysis of real and financial variables. The effects of an endogeneous or exogenous debt management have been studied by numerical simulation of modification in the public expenditure, the world trade, and the discount rate.