The Case for Trills: Giving the People and Their Pension Funds a Stake in the Wealth of the Nation

31 Pages Posted: 9 Aug 2009  

Mark J. Kamstra

York University - Schulich School of Business; Rady School of Management

Robert J. Shiller

Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance

Date Written: August 5, 2009

Abstract

We make the case for the U.S. government to issue a new security with a coupon tied to the United States’ current dollar GDP. This security might pay, for example, a coupon of one-trillionth of the GDP, and we propose the name 'Trill' be used to refer to this new security. This new debt instrument should be of great interest to the Government for its stabilizing influence on the budget (as coupon payments fall in a recession with declining tax revenues) and for its yield, based on our valuation. Standard asset pricing analysis also suggests that Trills would enable important new portfolio diversification strategies and, in contrast to available assets that protect relative standards of living in retirement, Trills would have virtually no counterparty risk. We believe there would be a lively appetite for the Trill from institutional investors, public and private pension funds, as well as the individual investor.

Keywords: GDP-linked bonds, Aggregate risk, Income risk, Inflation-indexed bonds, MacroShares, U.S. Treasury, Treasury Inflation Protection Securities (TIPS), Intergenerational risk sharing, International risk sharing, Hedging, Portfolio diversification, Market portfolio

JEL Classification: H63

Suggested Citation

Kamstra, Mark J. and Shiller, Robert J., The Case for Trills: Giving the People and Their Pension Funds a Stake in the Wealth of the Nation (August 5, 2009). Cowles Foundation Discussion Paper No. 1717; Yale ICF Working Paper No. 16. Available at SSRN: https://ssrn.com/abstract=1444351 or http://dx.doi.org/10.2139/ssrn.1444351

Mark J. Kamstra

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Robert J. Shiller (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
203-432-3708 (Phone)

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://www.econ.yale.edu/~shiller/

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