Discounting [23]

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Bullet points include: IAA (2013) notes that some practitioners believe that politically stable governments in economically developed countries have low probability of defaulting on their debts Taxing power, ability to expand money supply (assumes have own currency) Debt forgiveness and/or foreign aid Practical issues: What if thinly traded instruments: an illiquidity premium? Non-availability of relevant maturities: need for extrapolation? Extrapolate using spot rates or forward rates? Or other market observables? Which subset of instruments to use: e.g. on-the-run versus off-the-run securities? Other: tax treatment, transaction costs, other market frictions?

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