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Pricing Growth-Indexed Bonds

  • Paolo Mauro
  • Marcos Chamon

Growth-indexed bonds have been suggested as a way of reducing the procyclicality of emerging-market countries' fiscal policies and the likelihood of costly debt crises. Investor attitude surveys suggest that pricing difficulties are seen as a considerable obstacle. In an effort to reduce such concerns, this article presents a simple way of pricing growth-indexed bonds. As a pleasant by-product, the analysis tracks the quantitative implications of an increase in the share of growth-indexed bonds in total debt, measuring the ensuing decline in the probability of default and the reduction in the spreads at which standard bonds can be issued.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/216.

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Length: 26
Date of creation: 01 Nov 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/216
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