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When and Where Is It Cheaper to Issue Inflation-Linked Debt?

Author

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  • Andrey Ermolov

Abstract

I compare the direct issuance costs of inflation-linked debt (the liquidity premium) with nominal government debt (the inflation risk premium) in developed countries. On average, it is cheaper to issue nominal debt at medium maturities (5–10 years) and inflation-linked debt at long maturities (20 or more years), although results vary somewhat based on whether survey-based or statistical inflation expectations are used. Issuance costs exhibit pronounced time and cross-country variation. Lower inflation-linked debt issuance costs are associated with more countercyclical inflation and higher proportions of inflation-linked debt. International inflation-linked zero-coupon yields are available as an Internet Appendix to this paper. (JEL E31, E43, G12, G15, H30, H63)Received November 22, 2018; editorial decision March 9, 2021 by Editor Jeffrey Pontiff. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Andrey Ermolov, 2021. "When and Where Is It Cheaper to Issue Inflation-Linked Debt?," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 11(3), pages 610-653.
    • Handle: RePEc:oup:rasset:v:11:y:2021:i:3:p:610-653.
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    File URL: http://hdl.handle.net/10.1093/rapstu/raab016
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    Citations

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    Cited by:

    1. Cristhian Hernando Ruiz Cardozo & Jens H. E. Christensen, 2023. "The Benefit of Inflation-Indexed Debt: Evidence from an Emerging Bond Market," Working Paper Series 2023-04, Federal Reserve Bank of San Francisco.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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