EconPapers    
Economics at your fingertips  
 

Optimal GDP-indexed Bonds

Yasin Onder

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: I investigate the introduction of GDP-indexed bonds as an additional source of government borrowing in a quantitative default model. The idea of linking debt payments to developments in GDP resurfaced with the 1980s debt crisis and peaked with the COVID-19 outbreak. I show that the gains from this idea depend on the underlying indexation method and are highest if payments are symmetrically tied to developments in GDP. Optimized indexed debt can eradicate default risk, halve consumption volatility, and increase asset prices while raising the government’s debt balances. These changes occur because an optimally chosen indexation method does a better job at completing the markets.

Keywords: GDP-indexed bonds; sovereign default; risk sharing; state-contingent assets (search for similar items in EconPapers)
JEL-codes: F34 G11 G23 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2022-11
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://wps-feb.ugent.be/Papers/wp_22_1056.pdf (application/pdf)

Related works:
Journal Article: Optimal GDP-indexed Bonds (2023) Downloads
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:rug:rugwps:22/1056

Access Statistics for this paper

More papers in Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration Contact information at EDIRC.
Bibliographic data for series maintained by Nathalie Verhaeghe (nathalie.verhaeghe@ugent.be).

 
Page updated 2025-03-19
Handle: RePEc:rug:rugwps:22/1056