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GDP-linked bonds and sovereign default

Author

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  • Barr, David

    () (Bank of England)

  • Bush, Oliver

    () (Bank of England)

  • Pienkowski, Alex

    () (Bank of England)

Abstract

Using a calibrated model of endogenous sovereign default, we explore how GDP-linked bonds can raise the maximum sustainable debt level of a government, and substantially reduce the incidence of default. The model explores both the costs (in particular the GDP risk premium) and the benefits of issuing GDP-linked bonds. It concludes that significant welfare gains can be achieved by indexing debt to GDP.

Suggested Citation

  • Barr, David & Bush, Oliver & Pienkowski, Alex, 2014. "GDP-linked bonds and sovereign default," Bank of England working papers 484, Bank of England.
  • Handle: RePEc:boe:boeewp:0484
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Miller, Marcus & Thomas, Dania, 2013. "Eurozone Sovereign Debt Restructuring: promising legal prospects?," CAGE Online Working Paper Series 144, Competitive Advantage in the Global Economy (CAGE).
    2. Marcus Miller & Dania Thomas, 2013. "Eurozone sovereign debt restructuring: keeping the vultures at bay," Oxford Review of Economic Policy, Oxford University Press, vol. 29(4), pages 745-763, WINTER.
    3. Nicolas Carnot & Stéphanie Pamies Sumner, 2017. "GDP-linked Bonds: Some Simulations on EU Countries," European Economy - Discussion Papers 2015 - 073, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. van Riet, Ad, 2017. "Addressing the safety trilemma: a safe sovereign asset for the eurozone," ESRB Working Paper Series 35, European Systemic Risk Board.
    5. Miller, Marcus & Zhang, Lei, 2014. "Saving the Euro: self-fulfilling crisis and the ‘Draghi Put’," CEPR Discussion Papers 9976, C.E.P.R. Discussion Papers.
    6. Ghosal, Sayantan & Miller, Marcus & Thampanishvong, Kannika, 2016. "Waiting for a haircut? A bargaining perspective on sovereign debt restructuring," CEPR Discussion Papers 11710, C.E.P.R. Discussion Papers.
    7. Olivier J. Blanchard & Paolo Mauro & Julien Acalin, 2016. "The Case for Growth-Indexed Bonds in Advanced Economies Today," Policy Briefs PB16-2, Peterson Institute for International Economics.
    8. Gianni Vaggi, 2015. "Development and the post-2015 challenges: making the Sustainable Development Goals work," DEM Working Papers Series 107, University of Pavia, Department of Economics and Management.
    9. Christophe Destais, 2017. "Are State-Contingent Sovereign Bonds the Solution to Avoid Government Debt Crisis?," CEPII Policy Brief 2017-19, CEPII research center.
    10. Miller, Marcus & Zhang, Lei, 2013. "Fiscal consolidation: Dr Pangloss meets Mr Keynes," CAGE Online Working Paper Series 159, Competitive Advantage in the Global Economy (CAGE).

    More about this item

    Keywords

    Fiscal policy; contingent pricing; debt management; sovereign debt; sovereign default;

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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