Which improves welfare more: A nominal or an indexed bond?
Economists have long argued that loan contracts should be indexed to remove the risks arising from fluctuations in the purchasing power of money: indexation however while eliminating one risk, substitutes another, arising from fluctuations in relative prices of goods. We present a theoretical framework which permits the relative merits of a nominal versus an indexed bond to be assessed in a general equilibrium setting.
Volume (Year): 10 (1997)
Issue (Month): 1 ()
|Note:||Received: July 31, 1995; revised version August 7, 1996|
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