Optimal GDP-Indexed Bonds

59 Pages Posted: 21 Dec 2022

See all articles by Yasin Kürşat Önder

Yasin Kürşat Önder

Ghent University - Department of Economics

Date Written: November 15, 2022


I investigate the introduction of GDP-indexed bonds as an additional source of government borrowing in a quantitative default model. The idea of linking debt payments to developments in GDP resurfaced with the 1980s debt crisis and peaked with the COVID-19 outbreak. I show that the gains from this idea depend on the underlying indexation method and are highest if payments are symmetrically tied to developments in GDP. Optimized indexed debt can eradicate default risk, halve consumption volatility, and increase asset prices while raising the government’s debt balances. These changes occur because an optimally chosen indexation method does a better job at completing the markets.

Suggested Citation

Onder, Yasin, Optimal GDP-Indexed Bonds (November 15, 2022). Available at SSRN: https://ssrn.com/abstract=4288346 or http://dx.doi.org/10.2139/ssrn.4288346

Yasin Onder (Contact Author)

Ghent University - Department of Economics ( email )


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