TY  - JOUR
AU  - Bodie,Zvi
TI  - Inflation, Index-Linked Bonds, and Asset Allocation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2793
PY  - 1988
Y2  - December 1988
UR  - http://www.nber.org/papers/w2793
L1  - http://www.nber.org/papers/w2793.pdf
N1  - Author contact info:
Zvi Bodie
School of Management, room 534
Boston University
595 Commonwealth Ave.
Boston, MA   02215
Tel: 617-353-4160
E-Mail: zbodie@bu.edu
AB  - The recent introduction of CPI-linked bonds by several financial institutions is a milestone in the history of the U.S. financial system. It has potentially far-reaching effects on individual and institutional asset allocation decisions because these securities represent the only true long-run hedge against inflation risk. CPI-linked bonds make possible the creation of additional financial innovations that would use them as the asset base. One such innovation that seems likely is inflation-protected retirement annuities. The introduction of index-linked bonds eliminates one of the main obstacles to the indexation of benefits in private pension plans. A firm could hedge the risk associated with a long-term indexed liability by investing in index-linked bonds with the same duration as the indexed liabilities.
ER  -