IDEAS home Printed from https://ideas.repec.org/a/kuk/journl/v47y2014i1p79-101.html
   My bibliography  Save this article

Performance-Sensitive Government Bonds

Author

Listed:
  • Matthias Bank

    () (CFA, University of Innsbruck, Department of Banking and Finance)

  • Alexander Kupfer

    () (University of Innsbruck, Department of Banking and Finance)

  • Rupert Sendlhofer

    () (University of Innsbruck, Department of Public Finance)

Abstract

Steadily growing debt ratios indicate that current sovereign debt policy lacks important incentives for governments and politicians to fulfill it in a long-term sustainable way. To implement proper incentives, we propose the concept of performance- sensitive government bonds (PSGB) where coupon payments are closely linked to debt policy, giving strong incentives to limit debt levels and to timely restructure the economy. In addition, we show that the current mechanisms used to solve sovereign debt problems within the EMU are not only missing the right incentives but also setting the wrong ones.

Suggested Citation

  • Matthias Bank & Alexander Kupfer & Rupert Sendlhofer, 2014. "Performance-Sensitive Government Bonds," Credit and Capital Markets, Credit and Capital Markets, vol. 47(1), pages 79-101.
  • Handle: RePEc:kuk:journl:v:47:y:2014:i:1:p:79-101
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    2. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 51-82, April.
    3. Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 132-150, Autumn.
    4. Stephanie Schmitt-Grohe & Jess Benhabib & Martin Uribe, 2001. "Monetary Policy and Multiple Equilibria," American Economic Review, American Economic Association, pages 167-186.
    5. Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, pages 45-61.
    6. Jan Kakes & Cees Ullersma, 2003. "Financial stability in low-inflation environments," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 355-367 Bank for International Settlements.
    7. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, pages 193-225.
    8. Asea, Patrick K. & Blomberg, Brock, 1998. "Lending cycles," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 89-128.
    9. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    10. Michael D. Bordo & Olivier Jeanne, 2002. "Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy," NBER Working Papers 8966, National Bureau of Economic Research, Inc.
    11. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, pages 99-118.
    12. Ashoka Mody & Mark P. Taylor, 2003. "The High-Yield Spread as a Predictor of Real Economic Activity: Evidence of a Financial Accelerator for the United States," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 1-3.
    13. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, pages 257-276.
    14. Age Bakker & Bryan Chapple, 2002. "Advanced Country Experiences with Capital Account Liberalization," IMF Occasional Papers 214, International Monetary Fund.
    15. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    16. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, pages 257-276.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Sovereign debt policy; government bond; incentive; contingent debt; EMU;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kuk:journl:v:47:y:2014:i:1:p:79-101. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Credit and Capital Markets) or (Bamadev Paudel). General contact details of provider: http://www.credit-and-capital-markets.de/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.