Debt-Stabilizing Properties of GDP-Linked Securities : A Macro-Finance Perspective

We study the debt-stabilizing properties of indexing debt to GDP using a consumption-based macrofinance model. Three results stand out. First, GDP-linked bond prices would embed sizeable and timevarying risk premiums of about 40 basis points. Second, for a fixed budget surplus, issuing GDPlinked securities does not necessarily imply more beneficial debt-to-GDP ratios in the medium- to long-run. Third, the debt-stabilizing budget surplus is more predictable under such issuances at the expense of being higher on average. Our findings call into question the view that GDP-linkedsecurities tame debt

Year of publication:	[2021]
Authors:	Mouabbi, Sarah ; Renne, Jean-Paul ; Sahuc, Jean-Guillaume
Publisher:	[S.l.] : SSRN

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