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A Scorecard for Indexed Government Debt

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Abstract

Within the last five years, Canada, Sweden and New Zealand have joined the ranks of the United Kingdom and other countries in issuing government bonds that are indexed to inflation. Some observers of the experience in these countries have argued that the United States should follow suit. This paper provides an overview of the issues surrounding debt indexation, and it tries to answer three empirical questions about indexed debt. First, how different would the returns on indexed bonds be from the returns on existing US debt instruments? Second, how would indexed bonds affect the government's average financing costs? Third, how might the Federal Reserve be able to use the information contained in the prices of indexed bonds to help formulate monetary policy? The paper concludes with a more speculative discussion of the possible consequences of increased use of indexed debt contracts by the private sector.

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File URL: http://cowles.econ.yale.edu/P/cd/d11a/d1125.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1125.

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Length: 47 pages
Date of creation: May 1996
Date of revision:
Publication status: Published in Ben S. Bernanke and Julio Rotemberg (eds.), National Bureau of Economic Research Macroeconomics Annual 1996, MIT Press, 1996, pp. 155-197
Handle: RePEc:cwl:cwldpp:1125

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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  10. King, Mervyn, 1995. "Credibility and Monetary Policy: Theory and Evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 42(1), pages 1-19, February.
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  12. Campbell, John, 1996. "Understanding Risk and Return," Scholarly Articles 3153293, Harvard University Department of Economics.
  13. Bohn, Henning, 1988. "Why do we have nominal government debt?," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 127-140, January.
  14. Mishkin, Frederic S, 1990. "The Information in the Longer Maturity Term Structure about Future Inflation," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 815-28, August.
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