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Pricing Growth-Indexed Bonds

Author/Editor: Chamon, Marcos | Mauro, Paolo
Authorized for Distribution: November 1, 2005
Electronic Access: Free Full Text (PDF file size is 384KB)
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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.
 
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Series: Working Paper No. 05/216
Subject(s): Emerging markets | Bonds | Pricing policy
Author's keyword(s): Emerging markets; GDP-Indexed bonds; Monte-Carlo simulation
 
English  
    Published:   November 1, 2005        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2005216   Pages:   26
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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