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Inflation-indexed bonds and the expectations hypothesis

Author: Carolin E Pflueger; Luis M Viceira; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, ©2011.
Series: Working paper series (National Bureau of Economic Research), no. 16903.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Database:WorldCat
Summary:
This paper empirically analyzes the Expectations Hypothesis (EH) in inflation-indexed (or real) bonds and in nominal bonds in the US and in the UK. We strongly reject the EH in inflation-indexed bonds, and also confirm and update the existing evidence rejecting the EH in nominal bonds. This rejection implies that the risk premium on both real and nominal bonds varies predictably over time. We also find strong  Read more...
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Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Carolin E Pflueger; Luis M Viceira; National Bureau of Economic Research.
OCLC Number: 709560968
Notes: "March 2011."
Title from http://www.nber.org/papers/16903 viewed Mar. 28, 2011.
Description: 1 online resource (22, [6], 2 p.) : ill.
Series Title: Working paper series (National Bureau of Economic Research), no. 16903.
Responsibility: Carolin E. Pflueger, Luis M. Viceira.

Abstract:

This paper empirically analyzes the Expectations Hypothesis (EH) in inflation-indexed (or real) bonds and in nominal bonds in the US and in the UK. We strongly reject the EH in inflation-indexed bonds, and also confirm and update the existing evidence rejecting the EH in nominal bonds. This rejection implies that the risk premium on both real and nominal bonds varies predictably over time. We also find strong evidence that the spread between the nominal and the real bond risk premium, or the break-even inflation risk premium, also varies over time. We argue that the time variation in real bond risk premia mostly likely reflects both a changing real interest rate risk premium and a changing liquidity risk premium, and that the variability in the nominal bond risk premia reflects a changing inflation risk premium. We estimate significant time series variability in the magnitude and sign of bond risk premia.

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Linked Data


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