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GPD-linked Bonds as a Financing Tool for Developing Countries and Emerging Markets

Author

Listed:
  • Schröder, Michael
  • Heinemann, Friedrich
  • Kruse, Susanne
  • Meitner, Matthias

Abstract

The paper examines the applicability of GDP-linked bonds for the financing of developing countries and emerging markets. GDP-linked bonds are bonds of which the coupon and/or redemption payments are tied to the GDP of the issuing country. The study encompasses a detailed empirical analysis of their pricing behaviour, the pricing sensitivities to changes in GDP, and of their behaviour in a portfolio context is conducted. A survey amongst potential investors as well as issuing-side capital market participants assesses the prospects of success of this new type of bond. Finally, the usefulness of a partial public guarantee of payments is examined. The paper provides evidence under which circumstances, for which investors and for which countries GDP-linked bonds might be an appropriate investment vehicle.

Suggested Citation

  • Schröder, Michael & Heinemann, Friedrich & Kruse, Susanne & Meitner, Matthias, 2004. "GPD-linked Bonds as a Financing Tool for Developing Countries and Emerging Markets," ZEW Discussion Papers 04-64, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:2353
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    File URL: https://www.econstor.eu/bitstream/10419/24072/1/dp0464.pdf
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    References listed on IDEAS

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    1. Eduardo Borensztein & Paolo Mauro, 2002. "Reviving the Case for GDP-Indexed Bonds," IMF Policy Discussion Papers 02/10, International Monetary Fund.
    2. Schuknecht, Ludger, 1996. "Political Business Cycles and Fiscal Policies in Developing Countries," Kyklos, Wiley Blackwell, vol. 49(2), pages 155-170.
    3. Giovanni Dell'Ariccia & Jeronimo Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending; A Test," IMF Working Papers 02/181, International Monetary Fund.
    4. Steven B. Kamin, 2002. "Identifying the role of moral hazard in international financial markets," International Finance Discussion Papers 736, Board of Governors of the Federal Reserve System (U.S.).
    5. Robert T Price, 1997. "The Rationale and Design of Inflation-Indexed Bonds," IMF Working Papers 97/12, International Monetary Fund.
    6. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    7. Steven T Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
    8. Eduardo Borensztein & Paolo Mauro, 2004. "The case for GDP-indexed bonds," Economic Policy, CEPR;CES;MSH, vol. 19(38), pages 165-216, April.
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    Citations

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    Cited by:

    1. José Ramón Martínez-Resano, 2005. "Size and heterogeneity matter. A microstructure-based analysis of regulation of secondary markets for governments bonds," Occasional Papers 0501, Banco de España;Occasional Papers Homepage.
    2. J.Ramon Martinez-Resano, 2005. "Size And Heterogeneity Matter. A Microstructure-Based Analysis Of Regulation Of Secondary Markets For Government Bonds," Finance 0508007, EconWPA.

    More about this item

    Keywords

    GDP-linked bonds; bonds; development finance; public finance;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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