We propose a new filtering and smoothing technique for non-linear state-space models. Observed variables are quadratic functions of latent factors following a Gaussian VAR. Stacking the vector of factors with its vectorized outer-product, we form an augmented state vector whose first two...

We study the debt-stabilizing properties of indexing debt to GDP using a consumption-based macrofinance model. Three results stand out. First, GDP-linked bond prices would embed sizeable and timevarying risk premiums of about 40 basis points. Second, for a fixed budget surplus, issuing GDPlinked...