Cleveland Fed on merits to indexing loans

federal-reserve

A Cleveland Federal Reserve paper published on Tuesday makes the case for indexing loans to aggregate variables in order to smooth business cycles.

The paper's authors, Charles Carlstrom, Timothy Fuerst and Matthias Paustian, explore the effect of indexing debt to aggregate variables based on Ben Bernanke, Mark Gertler and Simon Gilchrist's model of the financial accelerator. An indexed loan is one in which payments change in response to changes in an index.

The authors note that the presence of

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