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The Case for Trills: Giving the People and Their Pension Funds a Stake in the Wealth of the Nation

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  • Mark Kamstra
  • Robert Shiller

Abstract

We make the case for the U.S. government to issue a new security with a coupon tied to the United States’ current dollar GDP. This security might pay, for example, a coupon of one-trillionth of the GDP, and we propose the name 'Trill' be used to refer to this new security. This new debt instrument should be of great interest to the Government for its stabilizing influence on the budget (as coupon payments fall in a recession with declining tax revenues) and for its yield, based on our valuation. Standard asset pricing analysis also suggests that Trills would enable important new portfolio diversification strategies and, in contrast to available assets that protect relative standards of living in retirement, Trills would have virtually no counterparty risk. We believe there would be a lively appetite for the Trill from institutional investors, public and private pension funds, as well as the individual investor.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2418.

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Date of creation: 01 Aug 2009
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Handle: RePEc:ysm:somwrk:amz2418

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Keywords: GDP-linked bonds; Aggregate risk; Income risk; Inflation-indexed bonds; MacroShares; U.S. Treasury; Treasury Inflation Protection Securities (TIPS); Intergenerational risk sharing; International risk sharing; Hedging; Portfolio diversification; Market portfolio;

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  2. Peled, Dan, 1984. "Stationary pareto optimality of stochastic asset equilibria with overlapping generations," Journal of Economic Theory, Elsevier, vol. 34(2), pages 396-403, December.
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Cited by:
  1. Davies, James B. & Yu, Xiaoyu, 2013. "Impacts of Cyclical Downturns on the Third Pillar of the RIS and Policy Responses," CLSSRN working papers clsrn_admin-2013-20, Vancouver School of Economics, revised 29 Apr 2013.

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