GDP-linked bonds and sovereign default
Oliver Bush and
Alex Pienkowski ()
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Alex Pienkowski: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH
No 484, Bank of England working papers from Bank of England
Using a calibrated model of endogenous sovereign default, we explore how GDP-linked bonds can raise the maximum sustainable debt level of a government, and substantially reduce the incidence of default. The model explores both the costs (in particular the GDP risk premium) and the benefits of issuing GDP-linked bonds. It concludes that significant welfare gains can be achieved by indexing debt to GDP.
Keywords: Fiscal policy; contingent pricing; debt management; sovereign debt; sovereign default (search for similar items in EconPapers)
JEL-codes: H63 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0484
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