Indexed Sovereign Debt: An Applied Framework

Guido Sandleris, Horacio Sapriza and Filippo Taddei

No 104, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: In recent years, some countries have issued sovereign bonds indexed to real variables such as GDP. Moreover, there has been discussions about this issue during the European crisis. This paper analyzes the effects of introducing this type of contracts in a standard DSGE model with sovereign default risk. We solved the model numerically calibrating it to the Argentine economy and show that the introduction of GDP-indexed sovereign debt contracts reduces the probability of default and makes the government willing to hold non-contingent assets and issue real-indexed bonds at the same time. The magnitude of the welfare effect that this type of instruments could generate is equivalent to an increase of approximately half a percentage point per year in certainty equivalent aggregate consumption.

JEL-codes: E6 F41 G15 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008, Revised 2011
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Indexed Sovereign Debt: An Applied Framework (2009)
Working Paper: Indexed Sovereign Debt: An Applied Framework (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:104

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