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Quantitative Implications of Indexed Bonds in Small Open Economies: Working Paper 2006-12

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  • C. Bora Durdu

Abstract

Recent studies have proposed setting up a benchmark market for indexed bonds to prevent "Sudden Stops," emerging-market crises initiated by sudden reversals of capital inflows. This paper analyzes the macroeconomic implications of such bonds, which would be indexed to the terms of trade or GDP, using a general equilibrium model of a small open economy with financial frictions. Although indexed bonds provide a hedge to income fluctuations and can thereby mitigate the effects of financial frictions, they introduce interest rate fluctuations. Because of this tradeoff

Suggested Citation

  • C. Bora Durdu, 2006. "Quantitative Implications of Indexed Bonds in Small Open Economies: Working Paper 2006-12," Working Papers 18245, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:18245
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    File URL: https://www.cbo.gov/sites/default/files/109th-congress-2005-2006/workingpaper/2006-12_0.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ceyhun Bora Durdu & Serdar Sayan, 2010. "Emerging Market Business Cycles with Remittance Fluctuations," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 303-325, June.

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