The Swedish Debt Office has developed a simple model for arriving at an approcimate figure for short-term relative Cost-at-Risk (RcaR) for Swedish central government debt. The method is not based on simulation but on analytical calculations.
The analytical RcaR measure shows how much higher than expected interest costs may be in a one-year perspective. In other words, it is relative rather than an absolute measure. Expected interest costs are based on a situation where interest rates and exchange rates are unchanged, and the inflation rate is two per cent in keeping with the Riksbank’s target.
In “Central Government Debt Management - Proposed Guidelines”, the Debt Office describes the new measure and how it is influenced by the characteristics of the debt. In the proposal, there is also a discussion about how the new measure should be used in the management of government debt. This technical memorandum describes exactly how RcaR is calculated and what data are used in the analysis in the proposed guidelines.