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The Politics of Index‐Linked Bonds

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  • L. Pecchi
  • G. Piga

Abstract

In this paper we will seek to provide a political economy explanation for the government issuance of indexed bonds. We will show that the issuance of nominal bonds decreases inflation whenever the bondholders’ constituency is stronger than the taxpayers’ constituency. We then assume that public debt management is influenced by the Central Bank. Contrary to what is predicted by the traditional time‐inconsistency approach, we show that when the creditor constituency is more powerful than the taxpayers’ constituency, by offering inflation protection through the issuance of indexed bonds the Central Bank reduces the creditors’ efforts against inflation and thereby raises equilibrium inflation.

Suggested Citation

  • L. Pecchi & G. Piga, 1999. "The Politics of Index‐Linked Bonds," Economics and Politics, Wiley Blackwell, vol. 11(2), pages 201-212, July.
    • Handle: RePEc:bla:ecopol:v:11:y:1999:i:2:p:201-212
    DOI: 10.1111/1468-0343.00058
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    Cited by:

    1. Louis Rouanet & Peter Hazlett, 2023. "The redistributive politics of monetary policy," Public Choice, Springer, vol. 194(1), pages 1-26, January.
    2. Nicola Acocella & Giovanni Bartolomeo & Wilfried Pauwels, 2010. "Is there any scope for corporatism in macroeconomic policies?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(4), pages 403-424, November.
    3. Gustavo Piga, 2005. "On The Sources Of The Inflation Bias And Output Variability," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(4), pages 607-622, September.
    4. Leonardo Becchetti & Iftekhar Hasan & George Mavrotas, 2005. "Education, Financial Institutions, Inflation and Growth," WIDER Working Paper Series RP2005-72, World Institute for Development Economic Research (UNU-WIDER).

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