Which Price Index for Eurozone Index-Linked Bonds?
NRG Working Paper No. 06-10
28 Pages Posted: 3 Oct 2006
Date Written: May 2006
Abstract
Index-linked bonds (ILBs) constitute a small but growing segment of the eurozone bond market. Issuers of index-linked bonds face a choice between linking to either a eurozone or a national price index. This paper examines this choice both theoretically and empirically and ends up with the following conclusions. First, ILBs linked to eurozone inflation are much less useful for diversification purposes than nationally indexed ILBs. This is hard to square with the intended use of these bonds. Second, ILBs linked to national price indices are imperfect hedges for national inflation. The latter finding is counterintuitive and arises because of monetary union.
Keywords: Index-linked bonds, inflation, EMU
JEL Classification: E31, G11, H63
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Divergent Inflation Rates in Emu
By Philip R. Lane and Patrick Honohan
-
Euro Area Inflation Differentials
By Ignazio Angeloni and Michael Ehrmann
-
Regional Inflation in a Currency Union: Fiscal Policy vs. Fundamentals
-
Exchange Rates and Inflation Under Emu: An Update
By Patrick Honohan and Philip R. Lane
-
Exchange Rates and Inflation Under Emu: An Update
By Patrick Honohan and Philip R. Lane
-
Inflation Convergence and Divergence within the European Monetary Union
By Fabio Busetti, Lorenzo Forni, ...
-
Regional Inflation Dynamics within and Across Euro Area Countries and a Comparison with the Us
-
Long-Run Determinants of Inflation Differentials in a Monetary Union
By Filippo Altissimo, Pierpaolo Benigno, ...
-
Long-Run Determinants of Inflation Differentials in a Monetary Union
By Filippo Altissimo, Pierpaolo Benigno, ...