This book brings together contributions from leading economists, lawyers and investors on the costs, benefits and practicalities of "GDP linked bonds", reflecting the recent revival of interest in these instruments as high public debt burdens globally have sparked a search for growth-friendly ways to strengthen government balance sheets. GDP-linked bonds are seen by some as a way of insuring governments against the next recession and by others as a means of strengthening the international financial architecture by sharing fiscal risk across borders, rather than loading it all on domestic taxpayers.
The chapters in this volume together provide the most comprehensive analysis to date of what it might take for these instruments to be a viable, market proposition: including an assessment of what a government's optimal capital structure might look like if it were to include GDP linked bonds, how much fiscal space might be created, how big the "GDP risk premium" that a government would have to pay for the recession insurance these instruments provide might be, an examination of important legal protections investors might require, and of key commercial and economic design choices. Drawing this discussion together, the book offers up, as a straw man, a GDP linked bond "term-sheet", laying out a set of material terms and conditions conceived, in their construction, to satisfy both the legal and commercial needs of the issuer and its investors.
Robert Shiller was awarded the Nobel Prize for Economics in 2013 and serves as the Sterling Professor of Economics at Yale University and Professor of Finance and Fellow at the Yale School of Management.
Maurice Obstfeld is Economic Counsellor and Director of Research at the International Monetary Fund, on leave from his position at the University of California, Berkeley, as Professor of Economics.
Andy Haldane is Chief Economist of the Bank of England, Executive Director for Monetary Analysis, Research and Statistics, and a member of the Bank of England's Monetary Policy Committee.
Jonathan D. Ostry is Deputy Director of the Research Department at the International Monetary Fund.
James Benford is a Head of Division at the Bank of England.
