Sovereign GDP-Linked Bonds
23 Pages Posted: 17 Oct 2016
Date Written: September 21, 2016
While the idea of governments issuing financial instruments whose repayments are indexed to gross domestic product (GDP) is not new, the current global backdrop of high sovereign debt coupled with low interest rates and weak and uncertain nominal growth prospects suggests the case for doing so may be especially strong now. 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.
Keywords: Sovereign debt, sovereign default, fiscal policy, debt management, GDP-linked bonds
JEL Classification: E62, F34, G12, G13, G15
Suggested Citation: Suggested Citation