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Working Paper

Indexed Debt Contracts and the Financial Accelerator

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This paper addresses the positive and normative implications of indexing risky debt to observable aggregate conditions. These issues are pursued within the context of the celebrated financial accelerator model of Bernanke, Gertler, and Gilchrist (1999). The principal conclusions are that the optimal degree of indexation is significant, and that the business cycle properties of the model are altered under this level of indexation.
Topics
Econometrics, modeling, and forecasting
08.08.2011ISSN 2573-7953 WP 11-17DOI 10.26509/frbc-wp-201117
Keywords credit market frictions, indexation
JEL Classification Codes E22, E32, E44

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Carlstrom, Charles T., Timothy S. Fuerst, and Matthius Paustian. 2011. “Indexed Debt Contracts and the Financial Accelerator.” Federal Reserve Bank of Cleveland, Working Paper No. 11-17. https://doi.org/10.26509/frbc-wp-201117