A Scorecard for Indexed Government Debt

65 Pages Posted: 3 Aug 1998 Last revised: 9 Oct 2022

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Robert J. Shiller

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

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Date Written: May 1996

Abstract

Within the last five years, Canada, Sweden and New Zealand have joined the ranks of the United Kingdom and other countries in issuing government bonds that are indexed to inflation. Some observers of the experience in these countries have argued that the United States should follow suit. This paper provides an overview of the issues surrounding debt indexation, and it tries to answer three empirical questions about indexed debt. First, how different would the returns on indexed bonds be from the returns on existing US debt instruments? Second, how would indexed bonds affect the government's average financing costs? Third, how might the Federal Reserve be able to use the information contained in the prices of indexed bonds to help formulate monetary policy? The paper concludes with a more speculative discussion of the possible consequences of increased use of indexed debt contracts by the private sector.

Suggested Citation

Campbell, John Y. and Shiller, Robert J., A Scorecard for Indexed Government Debt (May 1996). NBER Working Paper No. w5587, Available at SSRN: https://ssrn.com/abstract=3437

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Robert J. Shiller

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203-432-6167 (Fax)