When and Where Is It Cheaper to Issue Inflation-Linked Debt?

I compare the direct issuance costs of inflation-linked debt (the liquidity premium) with nominal government debt (the inflation risk premium) in developed countries. On average, it is cheaper to issue nominal debt at medium maturities (5–10 years) and inflation-linked debt at long maturities (20 or more years), although results vary somewhat based on whether survey-based or statistical inflation expectations are used. Issuance costs exhibit pronounced time and cross-country variation. Lower inflation-linked debt issuance costs are associated with more countercyclical inflation and higher proportions of inflation-linked debt. International inflation-linked zero-coupon yields are available as an Internet Appendix to this paper. (JEL E31, E43, G12, G15, H30, H63) Received November 22, 2018; editorial decision March 9, 2021 by Editor Jeffrey Pontiff. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.