Downloadable! GDP-indexed bonds in current values (GIBs) are a type of bonds that stabilises the debt ratio in the economic cycle and thus provides the issuing countries with countercyclical room for manoeuver. To date, only GDP-linked bonds with detachable warrants that yield a compensation bonus beyond some real growth thresholds have been issued and solely associated with debt restructuring. A test issuance of GDP-indexed bonds is needed to determine whether they would be an attractive addition to sovereign debt portfolios; policy makers may want to increase attention to the budget-stabilizing benefits of GDP-indexed bonds as well as ancillary benefits. Further technical work is required to support a test issuance of the bonds. Summary: This paper seeks to revive the case for countries to self-insure against economic growth slowdowns by issuing GDP-indexed bonds. We simulate the effects of GDP-indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood that debt/GDP paths become explosive.

GDP-LNDEX. The case for GDP-indexed bonds. Eduardo Borensztein and Paolo Mauro. International Monetary Fund. 1. INTRODUCTION AND MOTIVATION. 17 Jan 2018 A recent survey of OECD sovereign debt managers revealed a good deal of skepticism vis-à-vis GDP-linked bonds (GLBs), with respect to both  This paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of GDP. We show  Some emerging markets have experimented with GDP-linked sovereign borrowing, and the Greek finance minister is the latest to discuss the idea. We ask 

19 Feb 2015 A GDP-indexed bond can be designed in many ways. It can index the nominal value of the security (as in Shiller's growth-linked bonds), or it can 

of the issuance by governments of GDP-indexed bonds (“the GDP-Is”), that is securities whose cash outflows by the Treasury on account of the coupon and/or principal vary with the own GDP dynamics. It is straightforward to understand that such a class of bonds has the potential to cut the This paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of GDP. We show that GDP-indexed bonds could provide substantial benefits in reducing the likelihood of default crises and allowing countries to avoid pro-cyclical fiscal policies. Reviving the Case for GDP-Indexed Bonds Prepared by Eduardo Borensztein and Paolo Mauro1 September 2002 Abstract The views expressed in this Policy Discussion Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Policy Discussion Papers describe 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.

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.

Downloadable! GDP-indexed bonds in current values (GIBs) are a type of bonds that stabilises the debt ratio in the economic cycle and thus provides the issuing  19 Mar 2018 The crises that erupted in countries like Ireland and Greece a decade ago would not have been so severe had their debt been linked to their  19 Apr 2018 Chart 1. Greek public debt: observed data and scenario without restructuring with GDP-indexed bonds (% of GDP). Source: IMF and authors'  16 Mar 2018 The basic concept of GDP-linked government bonds is for their coupons and principal payments to be indexed to nominal GDP, and in so doing  In this paper we explore the ways in which GDP-linked bonds can stabilize sovereign debt dynamics and reduce the probability of default. GDP-linked bonds  

An index-linked bond is a bond in which payment of interest income on the principal is related to a specific price index, usually the Consumer Price Index (CPI). This feature provides protection to investors by shielding them from changes in the underlying index.

First, GDP-indexed bonds may introduce moral hazard problems by weakening the government's in- centives to implement growth-promoting policies (see,  GDP-indexed bonds have been advocated, among others, by Shiller (1993), Borenzstein and Mauro (2004),. Griffith-Jones and Sharma (2006), Kamstra and 

If large amounts of GDP-indexed sovereign debt were to be issued, a drop in the price of GDP-indexed debt in one country due to an exogenous shock - say an asteroid wipes out Paris - would then decrease the price of such debt in all other countries, potentially triggering a self-fuelling panic. Maybe I'm overly alarmist.

GDP‐indexed bonds tend to keep debt/GDP ratios within a narrower range than do plain vanilla bonds, thereby providing two key advantages. First, they reduce the likelihood of crises. There is, in fact, plenty of evidence that the sustainability of a country's sovereign debt position hinges crucially on its economic growth. We simulate the effects of GDP-indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood that debt/GDP paths become explosive. The insurance premium would likely be small,

GDP-linked bonds are a form of floating-rate bond with a coupon that is associated with the growth rate of a country, just as other floating-rate bonds are linked to interest rates, such as LIBOR or federal funds rate, or inflation rates, which is the case of inflation-indexed bonds. These securities can be issued to reference real GDP, nominal GDP or aspects of both. GDP-indexed bonds enable governments to remove the impact of macroeconomic shocks on the debt-to-GDP ratio, hence lowering the default risk and offering to issuers more countercyclical policy leeway. The development of GDP-indexed bonds would therefore contribute to global financial stability. GDP-linked Bonds: A Primer. Gross government debt in advanced economies has surpassed 105% of GDP, up from less than 75% a decade ago. Some countries with especially large debts—including Greece (177%), Italy (133%) and Portugal (129%)—are viewed not only as a risk to the countries themselves, but to others as well. GDP‐indexed bonds tend to keep debt/GDP ratios within a narrower range than do plain vanilla bonds, thereby providing two key advantages. First, they reduce the likelihood of crises. There is, in fact, plenty of evidence that the sustainability of a country's sovereign debt position hinges crucially on its economic growth. We simulate the effects of GDP-indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood that debt/GDP paths become explosive. The insurance premium would likely be small, GDP-indexed bonds tend to keep debt/GDP ratios within a narrower range than do plain vanilla bonds, thereby pr oviding two key advantages. First, they r educe the