Better still, the Fed could issue such a security and then target it's price to rise at 1+ its preferred inflation rate times 1+it's estimate of maximum real income growth. BTW the Treasury ought to be issuing more TIPS at other intervals 6 mo, 1,2,3,4 year intervals
These arguments seem to apply just as much to bonds linked to real GDP. So why is it better to make a futarcy optimising nominal GDP than one optimising real GDP?
Maybe I missed this in the article, but it seems like the main problem is that gdp linked bonds are usually not exactly the market clearing price. Countries don't want to pay more interest than they have to eg Germany and USA borrow at low rates. Lenders don't want to charge less interest than they have to eg some developing countries pay more interest than a gdp linked bond would. So in order for gdp linked bonds to make sense for both borrower and lender requires an uncommon circumstance.
Better still, the Fed could issue such a security and then target it's price to rise at 1+ its preferred inflation rate times 1+it's estimate of maximum real income growth. BTW the Treasury ought to be issuing more TIPS at other intervals 6 mo, 1,2,3,4 year intervals
These arguments seem to apply just as much to bonds linked to real GDP. So why is it better to make a futarcy optimising nominal GDP than one optimising real GDP?
I want NGDP bonds because I want the Fed to target NGDP. Plus Real GDP is much harder to calculate in real time.
"GDP minus inflation" is a much noisier signal than "GDP" alone given the fuzziness of inflation.
The late John Williamson wrote a short book in 2017 on this subject called Growth-Linked Securities.
Maybe I missed this in the article, but it seems like the main problem is that gdp linked bonds are usually not exactly the market clearing price. Countries don't want to pay more interest than they have to eg Germany and USA borrow at low rates. Lenders don't want to charge less interest than they have to eg some developing countries pay more interest than a gdp linked bond would. So in order for gdp linked bonds to make sense for both borrower and lender requires an uncommon circumstance.
what about developing countries offering GDP-linked bonds?