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Which improves welfare more: A nominal or an indexed bond?

Author

Listed:
  • Michael Magill

    (Department of Economics, University of Southern California, Los Angeles, CA 90089-0253, USA)

  • Martine Quinzii

    (Department of Economics, University of California, Davis, CA 95616-8578, USA)

Abstract

Economists have long argued that loan contracts should be indexed to remove the risks arising from fluctuations in the purchasing power of money: indexation however while eliminating one risk, substitutes another, arising from fluctuations in relative prices of goods. We present a theoretical framework which permits the relative merits of a nominal versus an indexed bond to be assessed in a general equilibrium setting.

Suggested Citation

  • Michael Magill & Martine Quinzii, 1997. "Which improves welfare more: A nominal or an indexed bond?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(1), pages 1-37.
    • Handle: RePEc:spr:joecth:v:10:y:1997:i:1:p:1-37
    Note: Received: July 31, 1995; revised version August 7, 1996
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    References listed on IDEAS

    as
    1. Viard, Alan D, 1993. "The Welfare Gain from the Introduction of Indexed Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 612-628, August.
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    Cited by:

    1. Michael Magill & Martine Quinzii, "undated". "Equity, Bonds, Growth And Inflation In A Quadratic Infinite Horizon Economy," Department of Economics 98-08, California Davis - Department of Economics.
    2. Jürgen Eichberger & Klaus Rheinberger & Martin Summer, 2014. "Credit risk in general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 407-435, October.
    3. Durdu, Ceyhun Bora, 2009. "Quantitative implications of indexed bonds in small open economies," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 883-902, April.
    4. Minwook KANG, 2014. "Sunspots and Inflation-indexed Bonds," Economic Growth Centre Working Paper Series 1401, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    5. Peters, David W., 2007. "The behavior of government of Canada real return bond returns," International Review of Financial Analysis, Elsevier, vol. 16(2), pages 152-171.
    6. Jürgen Eichberger & Klaus Rheinberger & Martin Summer, 2011. "Credit Risk in General Equilibrium," Working Papers 172, Oesterreichische Nationalbank (Austrian Central Bank).
    7. repec:onb:oenbwp:y::i:172:b:1 is not listed on IDEAS
    8. Eisei Ohtaki & Hiroyuki Ozaki, 2015. "Monetary equilibria and Knightian uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 435-459, August.
    9. Michael Magill & Martine Quinzii, "undated". "Equity, Bonds, Growth And Inflation In A Quadratic Infinite Horizon Economy," Department of Economics 98-08, California Davis - Department of Economics.
    10. Patrick Minford & Eric Nowell & Bruce Webb, 2003. "Nominal Contracting and Monetary Targets -- Drifting into Indexation," Economic Journal, Royal Economic Society, vol. 113(484), pages 65-100, January.
    11. Minwook Kang, 2020. "Inflation‐Indexed Bonds and Nominal Bonds: Financial Innovation and Precautionary Motives," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 721-745, June.

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    More about this item

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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