AltInst: Index-linked Govt. Debt for Robustness

     "A Modest Proposal for Structuring Public Debt"

      BY: DANNY T. QUAH
            London School of Economics
          ALESSANDRA MONGIARDINO
            J.P. Morgan Investment Management Inc.
          SPENCER DALE
            Bank of England

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     http://papers.ssrn.com/paper.taf?abstract_id=55605

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     http://econ.lse.ac.uk/~dquah/currmnu1.html

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          Date: April 1997

          Contact: Danny T. Quah
          E-Mail: MAILTO:d.quah@lse.ac.uk
          Postal: London School of Economics, Department of
                    Economics, Houghton Street, London WC2A 2AE,
                    England
          Phone: +44 (0)171-955 7535
          Fax: +44 (0)171-841-1840
          Co-Auth: MAILTO:alessandra@writeme.com
                    MAILTO:Spencer.Dale@bankofengland.co.uk

     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
     conventionals.

     JEL Classification: E44, E58, E62

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
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