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The Politics of Index-Linked Bonds

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  • L. Pecchi
  • G. Piga

Abstract

In this paper we will seek to provide a political economy explanation for the government issuance of indexed bonds. We will show that the issuance of nominal bonds decreases inflation whenever the bondholders' constituency is stronger than the taxpayers' constituency. We then assume that public debt management is influenced by the Central Bank. Contrary to what is predicted by the traditional time-inconsistency approach, we show that when the creditor constituency is more powerful than the taxpayers' constituency, by offering inflation protection through the issuance of indexed bonds the Central Bank reduces the creditors' efforts against inflation and thereby raises equilibrium inflation. Copyright 1999 Blackwell Publishers Ltd..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Economics and Politics.

Volume (Year): 11 (1999)
Issue (Month): 2 (07)
Pages: 201-212

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Handle: RePEc:bla:ecopol:v:11:y:1999:i:2:p:201-212

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0954-1985

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Cited by:
  1. Becchetti, Leonardo & Hasan, Iftekhar & Mavrotas, George, 2005. "Education, Financial Institutions, Inflation and Growth," Working Paper Series RP2005/72, World Institute for Development Economic Research (UNU-WIDER).
  2. Gustavo Piga, 2005. "On the Sources of the Inflation Bias and Output Variability," CEIS Research Paper 66, Tor Vergata University, CEIS.
  3. Nicola Acocella & Giovanni Bartolomeo & Wilfried Pauwels, 2010. "Is there any scope for corporatism in macroeconomic policies?," Empirica, Springer, vol. 37(4), pages 403-424, November.

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