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Pricing growth-indexed bonds

Author Info

  • Chamon, Marcos
  • Mauro, Paolo

Abstract

Growth-indexed bonds have been suggested as a way of reducing the procyclicality of emerging-market countries'' fiscal policies and the likelihood of costly debt crises. Investor attitude surveys suggest that pricing difficulties are seen as a considerable obstacle. In an effort to reduce such concerns, this article presents a simple way of pricing growth-indexed bonds. As a pleasant by-product, the analysis tracks the quantitative implications of an increase in the share of growth-indexed bonds in total debt, measuring the ensuing decline in the probability of default and the reduction in the spreads at which standard bonds can be issued.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 30 (2006)
Issue (Month): 12 (December)
Pages: 3349-3366

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Handle: RePEc:eee:jbfina:v:30:y:2006:i:12:p:3349-3366
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
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  8. repec:rus:hseeco:123922 is not listed on IDEAS
  9. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
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Cited by:

  1. repec:fip:fedreq:y:2012:i:2q:p:139-157:n:vol.98no.2 is not listed on IDEAS
  2. Diaw, Abdou & Bacha, Obiyathulla Ismath & Lahsasna, Ahcene, 2011. "Public Sector Funding and Debt Management: A Case for GDP-Linked Sukuk," MPRA Paper 46008, University Library of Munich, Germany, revised 2011.
  3. Luca Antonio Ricci & Marcos Chamon & Alejo Costa, 2008. "Is there a Novelty Premiumon New Financial Instruments? the Argentine Experience with Gdp-Indexed Warrants," IMF Working Papers 08/109, International Monetary Fund.
  4. Ken Miyajima, 2006. "How to Evaluate Gdp-Linked Warrants; Price and Repayment Capacity," IMF Working Papers 06/85, International Monetary Fund.
  5. Martin Brooke & Rhys R. Mendes & Alex Pienkowski & Eric Santor, 2013. "Sovereign Default and State-Contingent Debt," Discussion Papers 13-3, Bank of Canada.
  6. Diaw, Abdou & Bacha, Obiyathulla Ismath & Lahsasna, Ahcene, 2014. "Public Sector Funding and Debt Management: A Case for GDP-Linked Ṣukūk," Journal of Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 22, pages 185-216.
  7. Leonardo Martinez & Cesar Sosa Padilla & Juan Hatchondo, 2012. "Debt dilution and sovereign default risk," 2012 Meeting Papers 974, Society for Economic Dynamics.
  8. Barr, David & Bush, Oliver & Pienkowski, Alex, 2014. "GDP-linked bonds and sovereign default," Bank of England working papers 484, Bank of England.
  9. World Bank, 2008. "Country Insurance : Reducing Systemic Vulnerabilities in Latin America and the Caribbean," World Bank Other Operational Studies 8010, The World Bank.
  10. Juan Carlos Hatchondo & Leonardo Martinez, 2012. "On the benefits of GDP-indexed government debt: lessons from a model of sovereign defaults," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 139-157.

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