Debt-Stabilizing Properties of GDP-Linked Securities: A Macro-Finance Perspective

Sarah Mouabbi, Jean-Paul Renne and Jean-Guillaume Sahuc

Working papers from Banque de France

Abstract: We study the debt-stabilizing properties of indexing debt to GDP using a consumption-based macrofinance model. Three results stand out. First, GDP-linked bond prices would embed sizeable and timevarying risk premiums of about 40 basis points. Second, for a fixed budget surplus, issuing GDPlinked securities does not necessarily imply more beneficial debt-to-GDP ratios in the medium- to long-run. Third, the debt-stabilizing budget surplus is more predictable under such issuances at the expense of being higher on average. Our findings call into question the view that GDP-linked securities tame debt.

Keywords: GDP-linked securities; term structure; consumption-based model; debt stabilization. (search for similar items in EconPapers)
JEL-codes: E43 G12 G18 H63 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Debt-stabilizing properties of GDP-linked securities: A macro-finance perspective (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:844

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