Which Improves Welfare More: Nominal or 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 allows to assess, in a general equilibrium framework, the relative merits of a nominal versus an indexed bond.
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|Date of creation:||1995|
|Date of revision:|
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