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The Case for Trills: Giving the People and Their Pension Funds a Stake in the Wealth of the Nation

Mark Kamstra () and Robert Shiller

Yale School of Management Working Papers from Yale School of Management

Abstract: We make the case for the U.S. government to issue a new security with a coupon tied to the United States’ current dollar GDP. This security might pay, for example, a coupon of one-trillionth of the GDP, and we propose the name 'Trill' be used to refer to this new security. This new debt instrument should be of great interest to the Government for its stabilizing influence on the budget (as coupon payments fall in a recession with declining tax revenues) and for its yield, based on our valuation. Standard asset pricing analysis also suggests that Trills would enable important new portfolio diversification strategies and, in contrast to available assets that protect relative standards of living in retirement, Trills would have virtually no counterparty risk. We believe there would be a lively appetite for the Trill from institutional investors, public and private pension funds, as well as the individual investor.

Keywords: GDP-linked bonds; Aggregate risk; Income risk; Inflation-indexed bonds; MacroShares; U.S. Treasury; Treasury Inflation Protection Securities (TIPS); Intergenerational risk sharing; International risk sharing; Hedging; Portfolio diversification; Market portfolio (search for similar items in EconPapers)
Date: 2009-08-01
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