Hello, I have a simple problem in a small open economy setting with rising and persistent borrowing costs. I want to separate between legacy debt (before borrowing costs rose) with new debt, on which the higher new rates apply. Is there a simple way to do this through the budget constraint, without an overly complex maturity structure setup?
Please provide more details. Legacy debt only makes sense if maturity is bigger than 1 period. So what do you have in mind?