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Sovereign GDP-linked bonds

Author

Listed:
  • Benford, James

    () (Bank of England)

  • Joy, Mark

    () (Bank of England)

  • Kruger, Mark

    () (Bank of Canada)

Abstract

While the idea of governments issuing financial instruments whose repayments are indexed to gross domestic product (GDP) is not new, the current global backdrop of high sovereign debt coupled with low interest rates and weak and uncertain nominal growth prospects suggests the case for doing so may be especially strong now. This paper discusses the pros and cons of GDP-linked bonds, looks at when it might be most beneficial to issue, how investors might benefit, and possible ways of addressing the first-mover problem. The aim of this paper is to stimulate debate rather than provide answers.

Suggested Citation

  • Benford, James & Joy, Mark & Kruger, Mark, 2016. "Sovereign GDP-linked bonds," Bank of England Financial Stability Papers 39, Bank of England.
  • Handle: RePEc:boe:finsta:0039
    as

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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-paper/2016/sovereign-gdp-linked-bonds.pdf?la=en&hash=AA07D6B09813E8B07797E3D2FF157E3024C1847E
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. GDP-linked Bonds: A Primer
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-01-16 19:45:07

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    Cited by:

    1. repec:eee:dyncon:v:88:y:2018:i:c:p:137-155 is not listed on IDEAS
    2. Nicolas Carnot & St├ęphanie 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.
    3. Consiglio, Andrea & Zenios, Stavros A., 2018. "Pricing and hedging GDP-linked bonds in incomplete markets," Journal of Economic Dynamics and Control, Elsevier, vol. 88(C), pages 137-155.
    4. Christophe Destais, 2017. "Are State-Contingent Sovereign Bonds the Solution to Avoid Government Debt Crisis?," CEPII Policy Brief 2017-19, CEPII research center.

    More about this item

    Keywords

    Sovereign debt; sovereign default; fiscal policy; debt management; GDP-linked bonds;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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