VOX  CEPR Policy Portal

One of the legacies of the Global Crisis is a high ratio of public debt to GDP. While current levels may be sustainable, another series of bad shocks could easily tip the balance and lead to unsustainable debt ratios. This column argues that against this background, growth-indexed bonds can help. By decreasing payments when growth is low, they can substantially reduce the upper tail of the distribution of the debt ratio and lessen the risk of a debt explosion.