Management of indexed government debt: assessing the case for an inflation-indexed bond Online publication date: Mon, 04-Jun-2007
by Andrew H. Chen, Elaine T. Chen, R.D. Terrell
International Journal of Services Technology and Management (IJSTM), Vol. 8, No. 4/5, 2007
Abstract: Since The US Treasury's issuance of the inflation- protection securities (TIPS) in January 1997, there has been a great deal of renewed interest in studying various aspects of inflation-indexed bonds. This paper develops an equilibrium capital asset pricing model with uncertain inflation (CAPMUI), of which the Sharpe-Lintner-Mossin and the Roll models are the special cases. Based upon the CAPMUI, we analyse the impact of introducing inflation-indexed bonds on the risk-return relationships in the capital markets. Our analysis indicates that there is no a priori reason to believe that linking the bonds to the price level per se results in a welfare gain in risk-reduction in the capital markets. Our analysis indicates that a non- positive correlation between the return on the market portfolio and the rate of inflation is a sufficient condition for the introduction of indexed bonds to provide welfare gain in risk-reduction in the capital markets.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Services Technology and Management (IJSTM):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com
Our Blog 
Follow us on Twitter 
Visit us on Facebook