Inflation, Real Interest Rates, and the Bond Market: A Study of UK Nominal and Index-Linked Government Bond Prices / David G. Barr, John Y. Campbell.

Format:

Book

Author/Creator:

Barr, David G.

Contributor:

National Bureau of Economic Research.

Campbell, John Y.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5821.

NBER working paper series no. w5821

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Inflation, Real Interest Rates, and the Bond Market

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

This paper estimates expected future real interest rates and inflation rates from observed prices of UK government nominal and index-linked bonds. The estimation method takes account of imperfections in the indexation of UK index-linked bonds. It assumes that expected log returns on all bonds are equal, and that expected real interest rates and inflation follow simple time-series processes whose parameters can be estimated from the cross-section of bond prices. The extracted inflation expectations forecast actual future inflation more accurately than nominal yields do. The estimated real interest rate is highly variable at short horizons, but comparatively stable at long horizons. Changes in real rates and expected inflation are strongly negatively correlated at short horizons, but not at long horizons.

Notes:

Print version record

November 1996.