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GDP-linked bonds and economic growth

Author

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  • Kalamov, Zarko Y.
  • Zimmermann, Karl J.

Abstract

We analyze the implications of introducing GDP-linked bonds for economic growth. First, we model a stochastically growing small open economy. The government borrows from the international financial market, collects tax revenue, and provides a public infrastructure good. Sovereign debt may be both conventional and indexed to GDP. Second, we calibrate the model for a developing country. The introduction of GDP-linked bonds increases the optimal debt-to-GDP ratio, public-to-private capital ratio, and tax rate. It also exerts a small negative effect on the mean GDP growth rate as well as a small positive welfare impact.

Suggested Citation

  • Kalamov, Zarko Y. & Zimmermann, Karl J., 2023. "GDP-linked bonds and economic growth," Journal of International Money and Finance, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623001195
    DOI: 10.1016/j.jimonfin.2023.102918
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    More about this item

    Keywords

    Public debt; GDP-linked bonds; Economic growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H4 - Public Economics - - Publicly Provided Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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