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| Author: | Magill, M. Quinzii, M. |
| Title: | Which improves welfare more: A nominal or indexed bond? |
| Journal: | Economic Theory
1997 : JUN, VOL. 10:1, p. 1-37 |
| Index terms: | WELFARE BONDS RISK |
| Language: | eng |
| Abstract: | This paper presents a theoretical framework which permits the relative merits of a nominal versus an indexed bond to be assessed in a general equilibrium setting. Surprisingly few loan contracts are indexed in Western economies despite economists' arguments in favor of systematic indexation of loan contracts to remove the risks associated with fluctuations in the purchasing power of money. It takes high variability in inflation rates before private sector agents shift from undexed to indexed contracts. This paper provides a theoretical framework for explaining this phenomenon. |
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