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?
Any ideas?
Please provide more details. Legacy debt only makes sense if maturity is bigger than 1 period. So what do you have in mind?