AltInst: Index-linked Govt. Debt for Robustness

From: Robin Hanson <>
Date: Wed Aug 12 1998 - 12:26:50 PDT

     "A Modest Proposal for Structuring Public Debt"

            London School of Economics
            J.P. Morgan Investment Management Inc.
          SPENCER DALE
            Bank of England

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          Date: April 1997

          Contact: Danny T. Quah
          Postal: London School of Economics, Department of
                    Economics, Houghton Street, London WC2A 2AE,
          Phone: +44 (0)171-955 7535
          Fax: +44 (0)171-841-1840

     This paper proposes structuring public debt using
     considerations of robustness rather than strict optimality.
     Our proposal minimizes, over the infinite future, the
     conditional uncertainty surrounding public financing
     requirements. We estimate holding-period returns and market
     values on nominal and indexed UK government debt for a range
     of maturities, and derive the desired debt structures,
     according our proposal, that would be implied by the
     historical data. Although implications are not precise in all
     directions, given the historical UK data, our proposal leads
     to the government strongly favoring index-linked debt over

     JEL Classification: E44, E58, E62

Robin Hanson
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-2627

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Received on Wed Aug 12 19:45:02 1998

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