Which improves welfare more: A nominal or an indexed bond? |
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Authors: | Michael Magill Martine Quinzii |
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Institution: | (1) Department of Economics, University of Southern California, Los Angeles, CA 90089-0253, USA, US;(2) Department of Economics, University of California, Davis, CA 95616-8578, USA, US |
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Abstract: | Summary. Economists have long argued that loan contracts should be indexed to remove the risks arising from fluctuations in the purchasing
power of money: indexation however while eliminating one risk, substitutes another, arising from fluctuations in relative
prices of goods. We present a theoretical framework which permits the relative merits of a nominal versus an indexed bond
to be assessed in a general equilibrium setting.
Received: July 31, 1995; revised version August 7, 1996 |
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Keywords: | JEL Classification Numbers: D52 E31 |
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