The Welfare Gain from the Introduction of Indexed Bonds

Alan Viard ()

Journal of Money, Credit and Banking, 1993, vol. 25, issue 3, 612-28

Abstract: I examine the welfare gain from the introduction of indexed bonds in zero net supply. I show that trade in indexed bonds enables investors to reallocate existing economic risks in a mutually beneficial manner. The aggregate gain from the introduction of a safe asset is proportional to the variance of the minimum-variance portfolio formed from the risky assets and to the heterogeneity of investors' risk preferences. In an economy with nominal but not indexed bonds, the welfare loss from inflation uncertainty is lowest when inflation is most closely correlated with real returns on other assets. Contrary to popular intuition, the introduction of indexed bonds may reduce saving. Copyright 1993 by Ohio State University Press.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-2879%2819930 ... 0.CO%3B2-K&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Journal Article: The welfare gain from the introduction of indexed bonds (1993)
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:mcb:jmoncb:v:25:y:1993:i:3:p:612-28

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().