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The rationale for GDP-linked bonds for the euro area

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  • Emter, Lorenz

    (Central Bank of Ireland)

  • Herzberg, Valerie

    (Central Bank of Ireland)

Abstract

Performance related government bonds such as GDP-linked bonds can play a role in enhancing the architecture of the Economic Monetary Union. This Letter highlights the potential contribution of such instruments to reduce and share risks outside of financial crisis through more integrated capital markets. For governments to avail of this insurance, however, and to issue these bonds requires the additional cost or premium to be contained. Using the Capital Asset Pricing Model as a yardstick, we find that in the euro area this is likely to be the case for large issuers. Consequently, large member states should lead the development of this market.

Suggested Citation

  • Emter, Lorenz & Herzberg, Valerie, 2018. "The rationale for GDP-linked bonds for the euro area," Economic Letters 10/EL/18, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:10/el/18
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    References listed on IDEAS

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    Cited by:

    1. Daniel C. L. Hardy, 2022. "Alternatives in the Design of Sovereign Green Bonds," wiiw Policy Notes 62, The Vienna Institute for International Economic Studies, wiiw.

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