Pricing Growth-Indexed Bonds

Author/Editor:

Paolo Mauro ; Marcos d Chamon

Publication Date:

November 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2005/216

Subject:

Asset prices Bonds Emerging and frontier financial markets Foreign currency debt Inflation-indexed bonds

English

Publication Date:

November 1, 2005

ISBN/ISSN:

9781451862355/1018-5941

Stock No:

WPIEA2005216

Pages:

26

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