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Pay high in good times, pay low in bad times

Listed author(s):
  • Michael Schröder

    (Centre for European Economic Research (ZEW), Mannheim, Germany)

  • Friedrich Heinemann

    (Centre for European Economic Research (ZEW), Mannheim, Germany)

  • Susanne Kruse

    (Hochschule der Sparkassen-Finanzgruppe (University of Applied Sciences), Bonn, Germany)

  • Matthias Meitner

    (Centre for European Economic Research (ZEW), Mannheim, Germany)

The paper examines the applicability of GDP-linked bonds for the financing of developing countries. These bonds are characterised by tying the coupon and|or redemption payments to the GDP of the issuing country. Along with an analysis of their pricing behaviour and of their behaviour in a portfolio context, the study also encompasses a survey amongst financial experts in order to assess the prospects of success of this type of bond. Finally, the usefulness of a partial public guarantee of payments is examined. The paper provides evidence under which circumstances, for which investors and for which countries, GDP-linked bonds might be an appropriate investment vehicle. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jid.1354
File Function: Link to full text; subscription required
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 19 (2007)
Issue (Month): 5 ()
Pages: 667-683

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Handle: RePEc:wly:jintdv:v:19:y:2007:i:5:p:667-683
DOI: 10.1002/jid.1354
Contact details of provider: Web page: http://www3.interscience.wiley.com/journal/5102/home

References listed on IDEAS
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  1. Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
  2. Steven B. Kamin, 2002. "Identifying the role of moral hazard in international financial markets," International Finance Discussion Papers 736, Board of Governors of the Federal Reserve System (U.S.).
  3. Robert T Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
  4. Eduardo Borensztein & Paolo Mauro, 2002. "Reviving the Case for GDP-Indexed Bonds," IMF Policy Discussion Papers 02/10, International Monetary Fund.
  5. Atkinson, A. B. (ed.), 2004. "New Sources of Development Finance," OUP Catalogue, Oxford University Press, number 9780199278565.
  6. Steven T Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
  7. Susanne Kruse & Matthias Meitner & Michael Schroder, 2005. "On the pricing of GDP-linked financial products," Applied Financial Economics, Taylor & Francis Journals, vol. 15(16), pages 1125-1133.
  8. Schuknecht, Ludger, 1996. "Political Business Cycles and Fiscal Policies in Developing Countries," Kyklos, Wiley Blackwell, vol. 49(2), pages 155-170.
  9. Giovanni Dell'Ariccia & Jeronimo Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending; A Test," IMF Working Papers 02/181, International Monetary Fund.
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