Pricing Growth-Indexed Bonds

Marcos Chamon () and Paolo Mauro ()

No 05/216, IMF Working Papers from International Monetary Fund

Abstract: Growth-indexed bonds have been suggested as a way of reducing the procyclicality of emerging-market countries' fiscal policies and the likelihood of costly debt crises. Investor attitude surveys suggest that pricing difficulties are seen as a considerable obstacle. In an effort to reduce such concerns, this article presents a simple way of pricing growth-indexed bonds. As a pleasant by-product, the analysis tracks the quantitative implications of an increase in the share of growth-indexed bonds in total debt, measuring the ensuing decline in the probability of default and the reduction in the spreads at which standard bonds can be issued.

Keywords: Emerging markets; Bonds; Pricing policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-mic
Date: 2005-12-02
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Journal Article: Pricing growth-indexed bonds (2006)
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