Government debt policy: modern approach through derivatives and alternative bonds
| Thesis title in Czech: | Government debt policy: modern approach through derivatives and alternative bonds |
|---|---|
| Thesis title in English: | Government debt policy: modern approach through derivatives and alternative bonds |
| English key words: | GDP-Linked bonds, Credit default swaps |
| Academic year of topic announcement: | 2010/2011 |
| Thesis type: | diploma thesis |
| Thesis language: | angličtina |
| Department: | Institute of Economic Studies (23-IES) |
| Supervisor: | prof. Ing. Oldřich Dědek, CSc. |
| Author: | hidden - assigned by the advisor |
| Date of registration: | 19.10.2010 |
| Date of assignment: | 19.10.2010 |
| Date and time of defence: | 02.02.2012 00:00 |
| Venue of defence: | IES |
| Date of electronic submission: | 08.01.2012 |
| Date of proceeded defence: | 02.02.2012 |
| Opponents: | PhDr. Mgr. Goran Serdarevič, M.A. |
| References |
| Borensztein E. and Mauro P, 2004, "GDP-Indexed Bonds: The case for GDP-indexed bonds", Economic Policy, pp.165 – 216, IMF Working paper
Griffith-Jones, S. and K. Sharma, 2006, "GDP-Indexed Bonds: Making It Happen," U.N. DESA Working Paper No. 21. Ocampo, J A, Griffith-Jones, S, 2006, "A counter-cyclical framework for a development-friendly international financial architecture" Ocampo, J A (2003), "Capital Account and Counter-Cyclical Prudential Regulation in Developing Countries", in Ricardo Ffrench-Davis and Stephany Griffith-Jones (eds), From Capital Surges to Drought: Seeking Stability for Emerging Markets, London: Palgrave Macmillan, pp. 217-44. Schroder, M., Heinemann, F., 2007, "Pay High in Good Times, Pay Low in Bad Times", Journal of Internationa Development, 19, pp. 667 – 683 |
| Preliminary scope of work in English |
| Every country finances its public sector and expenses. Mostly, it is done through fiscal policy and borrowings on financial markets. This type of financing creates difficulties during downturns in a business cycle. In other words, when there is a general slowdown of economy, governments lose their tax revenues. Nevertheless, their expenses tend to increase as they have to provide social welfare. Moreover, creditors demand higher premiums for loans as default risk of lenders (governments) increases.
According to Griffith- Jones, Borensztein and Mauro (2004) and other economists from the UN, GDP-linked bonds could provide a counter-cyclical instrument for servicing public debt. The benchmark for a coupon of the bond would be the average growth of GPD from previous 5, 10 or 20 years. The difference from the benchmark would mean an increase or a decrease of coupon payments as GDP rise or decline, respectively. In comparison to traditional government bonds, the float premium would increase as the economy hit the downturn and investors would request additional premium for default risk. In my point of view, it would be interesting to see if such an instrument enables to decrease the cost of servicing public debt in two similar countries, the Czech Republic and Slovakia. I chose these countries because of similar economies, common history, different currencies and impact of the crisis and currency The main data I will work with is: Historical GDP growth from statistical agencies of chosen countries Risk premiums of government bonds of chosen countries |