GDP-linked Bonds: Some Simulations on EU Countries
Nicolas Carnot and
Stéphanie Pamies Sumner
No 73, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission
Abstract:
The economic and fiscal outlook has recently improved for European economies, raising the odds that high public debts inherited from the crisis will be gradually wound down in line with EU fiscal rules. This will however take time and future debt trajectories remain exposed to significant uncertainties. In this context, this paper explores some implications of GDP-linked bonds (GLBs), an instrument for national debt management that has recently sparked growing interest. Based on the data and tools of the Commission Debt Sustainability Monitor, our results suggest significant potential benefits from GLBs in reducing debt uncertainties for all European economies. These benefits would be notably large in countries characterised by medium-to-high debt, high macroeconomic volatility and limited alternative tools to smoothen shocks. A risk premium would not eliminate the debt-stabilisation benefits brought by GLBs. The fall in the probability of explosive debt paths could also reduce the premium demanded by investors on conventional bonds in high-debt countries. The issuance of a fraction of GLBs can however be no substitute for pursuing sound economic and budgetary policies curbing national debts.
JEL-codes: E62 F34 H63 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-12
New Economics Papers: this item is included in nep-cmp, nep-eec, nep-mac and nep-pbe
References: Add references at CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://economy-finance.ec.europa.eu/publications/ ... ions-eu-countries_en (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:073
Access Statistics for this paper
More papers in European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO (ecfin-info@ec.europa.eu).