Lower borrowing costs with inflation-indexed bonds: A trading rule based assessment
Economics Letters, 2008, vol. 99, issue 2, 272-274
A simple trading rule invests in long-term bonds or the risk-free asset based on publicly observed economic variables. The results indicate a predictable inflation risk premium for conventional bonds but no ex-ante risk compensation for indexed bonds. This suggests the government can achieve lower funding costs by issuing indexed debt.
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