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Growth-Indexed Bonds in Emerging Markets: a Quantitative Approach

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  • Andre Faria

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    (Research Department IMF)

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    Abstract

    In the aftermath of sovereign defaults and financial crises in the 1990s, there have been calls for the widespread use by sovereigns of equity-like financial instruments, in particular, of GDP-indexed bonds. This paper calibrates a general equilibrium model with endogenous default to a typical emerging market economy and evaluates whether the existence of a (partially) GDP-indexed bond, as proposed in the literature, is quantitatively important in what concerns spreads, debt to GDP ratios, and the likelihood of default

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    File URL: http://repec.org/sed2006/up.18903.1140058027.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 847.

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    Date of creation: 03 Dec 2006
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    Handle: RePEc:red:sed006:847

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    Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    Keywords: Sovereign debt; GDP-indexed bonds; Spreads; Emerging markets; Default;

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    1. Mark Aguiar & Erik Hurst, 2004. "Consumption vs. Expenditure," NBER Working Papers 10307, National Bureau of Economic Research, Inc.
    2. Herschel I. Grossman & John B. Van Huyck, 1985. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," NBER Working Papers 1673, National Bureau of Economic Research, Inc.
    3. Reinhart, Carmen & Rogoff, Kenneth, 2004. "Serial default and the “paradox” of rich to poor capital flows," MPRA Paper 13997, University Library of Munich, Germany.
    4. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    5. Alfaro, Laura & Kanczuk, Fabio, 2005. "Sovereign debt as a contingent claim: a quantitative approach," Journal of International Economics, Elsevier, vol. 65(2), pages 297-314, March.
    6. Eduardo Borensztein & Olivier Jeanne & Paolo Mauro & Jeromin Zettelmeyer & Marcos Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
    7. Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc.
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