Abstract
One of the big criticisms always voiced of GDP-linked securities is that the value paid out to investors depends upon the growth rates published in official statistics. This deprives GDP-linked securities of an unambiguous base. There are three possible sources of ambiguities. One consists of the routine adjustments of GDP statistics that follow publication, motivated by the receipt of additional information. A second is bad faith on the part of the issuer. The third consists of non-routine adjustments of GDP statistics that occasionally occur to reflect the changing structure of the economy. The latter is argued to be the most serious problem, given that the second is appropriately dealt with by the put option included in the term sheet. It is proposed to deal with this by regular GDP revisions and permitting countries to use the old GDP for one period after the new one becomes available.
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Notes
- 1.
Countries with over ten million population that were excluded for lack of adequate statistics were Algeria, Angola, Bulgaria , Cambodia, Congo, Côte d’Ivoire, Mali, Niger, Vietnam, and Yemen.
- 2.
This involves the loss of data from years in which there was a change in deflator. In order to overcome this we tried splicing the series for the GDP deflators by assuming that the later series was correct and using it to infer the change in the GDP deflator of the earlier series for dates when the data did not give changes in the GDP deflator of the earlier series. This increased the number of observations to over 19,000, but it made little difference to the proportions showing deviations from year to year greater than 1% or 3%.
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OECD. 2006. Performing Revisions and Real-Time Data Analysis. Statistics Brief, November.
———. 2015. Revisions of Quarterly GDP in Selected OECD Countries. Statistics Brief, July.
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Williamson, J. (2017). GDP Revisions. In: Growth-Linked Securities . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-68333-1_8
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DOI: https://doi.org/10.1007/978-3-319-68333-1_8
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