Countries in monetary union should index sovereign debt to GDP growth

bond

Issuing GDP-indexed sovereign bonds can be welfare-enhancing especially for countries with volatile GDP growth, or countries in a monetary union where monetary policy is constrained, according to a working paper published last week by the Bank of England (BoE).

BoE economists David Barr, Oliver Bush and Alex Pienkowski show in their paper, GDP-linked bonds and sovereign default, that taxpayers will generally have to pay higher interest payments on GDP-linked bonds compared to conventional bonds

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