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Lower borrowing costs with inflation-indexed bonds: A trading rule based assessment

  • Reschreiter, Andreas

A simple trading rule invests in long-term bonds or the risk-free asset based on publicly observed economic variables. The results indicate a predictable inflation risk premium for conventional bonds but no ex-ante risk compensation for indexed bonds. This suggests the government can achieve lower funding costs by issuing indexed debt.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4P9SN9P-4/1/147835dcd815dfe182a6735a8efabed0
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 99 (2008)
Issue (Month): 2 (May)
Pages: 272-274

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Handle: RePEc:eee:ecolet:v:99:y:2008:i:2:p:272-274
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. John Y. Campbell & Robert J. Shiller, 1996. "A Scorecard for Indexed Government Debt," Cowles Foundation Discussion Papers 1125, Cowles Foundation for Research in Economics, Yale University.
  2. Campbell, John, 1995. "Some Lessons from the Yield Curve," Scholarly Articles 3163264, Harvard University Department of Economics.
  3. John Y. Campbell, 2000. "Asset Pricing at the Millennium," NBER Working Papers 7589, National Bureau of Economic Research, Inc.
  4. Reschreiter, Andreas, 2006. "Indexed Bonds and Revisions of Inflation Expectations," Economics Series 199, Institute for Advanced Studies.
  5. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-79, March.
  6. Robert T. Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
  7. Reschreiter, Andreas, 2004. "Conditional funding costs of inflation-indexed and conventional government bonds," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1299-1318, June.
  8. Andreas Reschreiter, 2004. "Risk factors of inflation-indexed and conventional government bonds and the APT," Money Macro and Finance (MMF) Research Group Conference 2003 79, Money Macro and Finance Research Group.
  9. Frank F. Gong & Eli M. Remolona, 1996. "Inflation risk in the U.S. yield curve: the usefulness of indexed bonds," Research Paper 9637, Federal Reserve Bank of New York.
  10. Pesaran, M Hashem & Timmermann, Allan, 1995. " Predictability of Stock Returns: Robustness and Economic Significance," Journal of Finance, American Finance Association, vol. 50(4), pages 1201-28, September.
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