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Debt Management - Theory and Practice

The primary objective of UK debt management policy is to minimise cost over the long term, taking account of risk, whilst ensuring consistency with the objectives of monetary policy. However defining what makes up the "optimal" portfolio to meet this objective is a difficult problem. The paper examines several different theoretical approaches to the question.
The conclusion is that current research has provided a number of useful insights into the conduct of debt management policy, and that on the whole, these are reflected in current UK policy. However there are also a number of areas where there is a gap between theory and practice, which need to be more carefully explored. Overall, current research does not yet appear to provide sufficient guidance as to the optimal debt portfolio. The paper then suggests some areas for further research, which would help to illustrate the costs and benefits of different debt portfolios. An executive summary is provided at the beginning of the paper.