Topics in the Supply of GDP-Linked Securities

Abstract

It is argued that, although there is nothing to prevent other units (like state or even commercial enterprises) issuing GDP-linked securities, the market is likely to be dominated by sovereigns, who have both a need to borrow and an incentive, inasmuch as they are held responsible for anti-cyclical policy. It is also argued that countries committed to monetary union would be advised to express their mutual debts in this way, since this provides some element of automatic (but strictly temporary) transfer, while also giving creditors a stake in the prosperity of debtors. Finally, in view of the concentration of the Bank of England on the RS-model, we decided that it would be worthwhile to attempt to write an alternative term sheet for the BM-variant.