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Inflation-indexed bonds.

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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.

Bond market. --- Bonds -- Prices. --- Electronic books. -- local. --- Government securities -- Developing countries. --- Inflation-indexed bonds -- Developing countries. --- Exports and Imports --- Finance: General --- Investments: Bonds --- Macroeconomics --- General Financial Markets: General (includes Measurement and Data) --- Price Level --- Inflation --- Deflation --- International Lending and Debt Problems --- Investment & securities --- Finance --- International economics --- Bonds --- Emerging and frontier financial markets --- Inflation-indexed bonds --- Asset prices --- Foreign currency debt --- Financial services industry --- Prices --- Debts, External --- United States --- Government securities --- Prices.

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A number of industrialized countries have recently offered inflation-indexed bonds. Some members of another group of countries that had earlier adopted more comprehensive indexation in response to high inflation have taken steps to reduce the scope of indexation in their economies. This paper surveys debt management, monetary policy, and welfare arguments on the use of inflation-indexed bonds, and relates these to the experiences of various issuers. The paper also considers some important design features of indexed bonds.

Inflation --- Investments: General --- Investments: Bonds --- Macroeconomics --- General Financial Markets: Other --- General Financial Markets: General (includes Measurement and Data) --- Price Level --- Deflation --- Investment --- Capital --- Intangible Capital --- Capacity --- Investment & securities --- Inflation-indexed bonds --- Bonds --- Consumer price indexes --- Return on investment --- Financial institutions --- Prices --- National accounts --- Price indexes --- Saving and investment --- United Kingdom

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This paper examines the Argentine experience with GDP-indexed warrants in order to gauge the existence of a novelty premium on new financial instruments. It develops a Monte Carlo pricing exercise to calculate the expected net present value of payments, on the basis of various forecast assumptions. The results show that the residual premium paid by these warrants over standard bonds declined significantly by about 600 basis points between December 2005 and July 2007. This suggests that financial innovation may be associated with premia, which decay reasonably fast.

Inflation-indexed bonds --- Econometric models. --- Granny bonds --- Index bonds --- Index-linked bonds --- Indexed bonds --- Inflation-linked bonds --- Inflation-protection bonds --- Bonds --- Banks and Banking --- Foreign Exchange --- Inflation --- Investments: General --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Price Level --- Deflation --- General Financial Markets: General (includes Measurement and Data) --- Interest Rates: Determination, Term Structure, and Effects --- Monetary economics --- Macroeconomics --- Investment & securities --- Finance --- Currency --- Foreign exchange --- Currencies --- Securities --- Discount rates --- Exchange rates --- Money --- Prices --- Financial instruments --- Discount --- Argentina

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The debate on government debt in the context of possible reforms of the international financial architecture has thus far focused on crisis resolution. This paper seeks to broaden this debate. It asks how government debt could be structured to pursue other objectives, including crisis prevention, international risk-sharing, and facilitating the adjustment of fiscal variables to changes in domestic economic conditions. To that end, the paper considers recently developed analytical approaches to improving sovereign debt structure using existing instruments, and reviews a number of proposals--including the introduction of explicit seniority and GDP-linked instruments--in the sovereign context.

Debts, Public. --- Financial instruments. --- Capital instruments --- Financial instruments --- Legal instruments --- Negotiable instruments --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Law and legislation --- Exports and Imports --- Finance: General --- Investments: Bonds --- Public Finance --- Natural Disasters --- General Financial Markets: General (includes Measurement and Data) --- Debt Management --- Sovereign Debt --- Climate --- Natural Disasters and Their Management --- Global Warming --- International Lending and Debt Problems --- Insurance --- Insurance Companies --- Actuarial Studies --- Finance --- Investment & securities --- Natural disasters --- Public finance & taxation --- International economics --- Emerging and frontier financial markets --- Inflation-indexed bonds --- Financial markets --- Financial institutions --- Environment --- Local currency debt --- External debt --- Financial services industry --- Debts, Public --- Debts, External --- United States