Pricing Growth-Indexed Bonds

Growth-indexed bonds have been suggested as a way of reducing the procyclicality of emerging-market countries' fiscal policies and the likelihood of costly debt crises. Investor attitude surveys suggest that pricing difficulties are seen as a considerable obstacle. In an effort to reduce such concerns, this article presents a simple way of pricing growth-indexed bonds. As a pleasant by-product, the analysis tracks the quantitative implications of an increase in the share of growth-indexed bonds in total debt, measuring the ensuing decline in the probability of default and the reduction in the spreads at which standard bonds can be issued.
Publication date: November 2005
ISBN: 9781451862355
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Finance , GDP-indexed bonds , Monte-Carlo simulation , indexed bonds , bonds , bond , indexation , indexed bond , International Monetary Arrangements and Institutions , International Lending and Debt Problems , Financial Aspects of Economic Integration

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