Which price index for Eurozone Index-Linked Bonds?

Ivo Arnold ()

No 06-10, Nyenrode Research Papers Series from Nyenrode Business Universiteit

Abstract: Index-linked bonds (ILBs) constitute a small but growing segment of the eurozone bond market. Issuers of index-linked bonds face a choice between linking to either a eurozone or a national price index. This paper examines this choice both theoretically and empirically and ends up with the following conclusions. First, ILBs linked to eurozone inflation are much less useful for diversification purposes than nationally indexed ILBs. This is hard to square with the intended use of these bonds. Second, ILBs linked to national price indices are imperfect hedges for national inflation. The latter finding is counterintuitive and arises because of monetary union.

Keywords: Index-linked bonds; inflation; EMU (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-fmk, nep-mac and nep-mon
Date: 2006

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Persistent link: http://EconPapers.repec.org/RePEc:dgr:nijrep:2006-10

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