Skip to main content
  • This website sets cookies on your device. To find out more about how we use cookies please refer to our Privacy and Cookie Policy. By continuing to use the site, we’ll assume that you are content for us to set these on your device.
  • Close
Home > Research > Working Paper No. 484: GDP-linked bonds and sovereign default - David Barr, Oliver Bush and Alex Pienkowski
 

Working Paper No. 484: GDP-linked bonds and sovereign default - David Barr, Oliver Bush and Alex Pienkowski

31 January 2014

Working Paper No. 484
GDP-linked bonds and sovereign default
 (431KB)
David Barr, Oliver Bush and Alex Pienkowski

Using a calibrated model of endogenous sovereign default, we explore how GDP-linked bonds can raise the maximum sustainable debt level of a government, and substantially reduce the incidence of default.  The model explores both the costs (in particular the GDP risk premium) and the benefits of issuing GDP-linked bonds.  It concludes that significant welfare gains can be achieved by indexing debt to GDP. 

Share