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

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Author Info

  • 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.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 10 (1997)
Issue (Month): 1 ()
Pages: 1-37

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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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Cited by:
  1. Jürgen Eichberger & Klaus Rheinberger & Martin Summer, 2014. "Credit Risk in General Equilibrium," CESifo Working Paper Series 4602, CESifo Group Munich.
  2. Martine Quinzii & Michael Magill & Julian R. Betts, 2003. "Equity, Bonds, Growth And Inflation In A Quadratic Infinite Horizon Economy," Working Papers 988, University of California, Davis, Department of Economics.
  3. 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.
  4. 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.

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