Indexed Bonds and European Monetary Union

Harff Christoph
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Harff Christoph: M.A. Christian-Albrechts-Universität Kiel Institut für Volkswirtschaftslehre Olshausenstraße 40 24118 Kiel

Zeitschrift für Wirtschaftspolitik, 2000, vol. 49, issue 1, 82-99

Abstract: Indexed government bonds have recently been promoted as instruments for fiscal and monetary credibility in Europe. Nevertheless, indexed bond markets remain very small or do not exist at all. This paper illustrates the advantages of indexed bonds for fiscal and monetary policy. An analysis of indexed bond markets explains the paradox of well known benefits of indexed bond markets and their lack of popularity. It is shown that the market for indexed bonds has asymmetries in the distribution of its risks and benefits which prevent a required minimum size of the market. This holds in particular for EMU. Finally, a proposal is presented to establish a market for indexed bonds in EMU.

Date: 2000
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DOI: 10.1515/zfwp-2000-0105

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