expected inflation rate

Expectations theory and inflation?

Suppose 2-year Treasury bonds yield 4.25%, while 1-year bonds yield 2.6%. r* is 1.5%, and the maturity risk premium is zero.
a. Using the expectations theory, what is the yield on a 1-year bond, one year from now?
b. What is the expected inflation rate in Year 1?
c. What is the expected inflation rate in Year 2?

a)
(1+2.6%)(1+x%) = (1+4.25%)(1+4.25%)
1+x% = 1.0425•1.0425/1.026 ≈ 1.0593
x% ≈ 5.93%
Ex Ante nominal yield ≈ 5.93%

b)
1+π%=(1+i%)/(1+r%)
1+π%=(1+2.6%)/(1+1.5%) = 1.026/1.015 ≈ 1.01084
π% ≈ 1.084%
Ex Ante inflation ≈ 1.084%

c)
1+π%=(1+i%)/(1+r%)
1+π%=(1+5.93%)/(1+1.5%) = 1.0593/1.015 ≈ 1.0436
π% ≈ 4.36%
Ex Ante inflation ≈ 4.36%

Decomposing U.S. nominal interest rates into expected inflation and ex ante real interest rates using structural VAR methodology (Document de travail) ...

Money, inflation and the expected real interest rate (Working paper) ...

An efficient markets model of the real interest rate and the expected rate of inflation (Working papers / Federal Trade Commission, Bureau of Economics) ...

Interest Rate Targeting, Inflation, and the Fisher Effect - An Empirical Test of the Real Interest Rate in Germany, 1970-2000 $65.98 In the conduct of monetary policy, central banks may employ a policy instrument such as the discount rate to affect an intermediate target such as nominal interest rates in order to achieve an ultimate policy goal such as price stability. If nominal rates contain little or no information on real interest rates, and therefore on the tightness of monetary policy, they will be less useful as the central bank target. This book is an empirical test of the constancy of the real interest rate in Germany over the period 1970 to 2000. It addresses the following questions: (a) Are German real interest rate movements correlated with expected inflation?; (b) Are German real interest rates correlated with cyclical movements in real variables?; and (c) How valid is the Fisher Effect, which posits that movements in nominal interest rates reflect changes in expected inflation, in the case of Germany? These questions were examined in the context of U.S. monetary policy by Frederic Mishkin in his 1981 article, "The Real Interest Rate: An Empirical Investigation", which this book draws on. The book is intended for students, researchers, scholars, and analysts of central bank monetary policy.

Inflation $25 Inflation

Inflation $10.97 Inflation

Inflation Targeting $29.48 How should governments and central banks use monetary policy to create a healthy economy? Traditionally, policymakers have used such strategies as controlling the growth of the money supply or pegging the exchange rate to a stable currency. In recent years a promising new approach has emerged: publicly announcing and pursuing specific targets for the rate of inflation. This book is the first in-depth study of inflation targeting. Combining penetrating theoretical analysis with detailed empirical studies of countries where inflation targeting has been adopted, the authors show that the strategy has clear advantages over traditional policies. They argue that the U.S. Federal Reserve and the European Central Bank should adopt this strategy, and they make specific proposals for doing so.The book begins by explaining the unique features and advantages of inflation targeting. The authors argue that the simplicity and openness of inflation targeting make it far easier for the public to understand the intent and effects of monetary policy. This strategy also increases policymakers' accountability for inflation performance and can accommodate flexible, even "discretionary," monetary policy actions without sacrificing central banks' credibility. The authors examine how well variants of this approach have worked in nine countries: Germany and Switzerland (which employ a money-focused form of inflation targeting), New Zealand, Canada, the United Kingdom, Sweden, Israel, Spain, and Australia. They show that these countries have typically seen lower inflation, lower inflation expectations, and lower nominal interest rates, and have found that one-time shocks to the price level have less of a "pass-through" effect on inflation. These effects, in turn, are improving the climate for economic growth. The authors warn, however, that the success of inflation targeting depends on operational details, such as how the targets are defined and when they are announced. They also show that inflation targeting is not a panacea that can make inflation perfectly predictable or reduce it without economic costs.Clear, balanced, and authoritative, Inflation Targeting is a groundbreaking study that will have a major impact on the debate over the right monetary strategy for the coming decades. As a unique comparative study of what central banks actually do in different countries around the world, this book will also be invaluable to anyone interested in how economic policy is made.

Essays on Inflation $41.48 This volume contains articles on the subject of inflation, most of which originally appeared in the Federal Reserve Bank of Richmond's Economic Review. Collectively the articles summarize the major issues current in contemporary discussions of the inflation problem. Topics covered include theories of inflation, reasons for its persistence, models of the inflationary transmission mechanism, the relationship between inflation and unemployment, the formulation of inflationary expectations, inflation and the demand for money, interest rates and inflation, international aspects of inflation under fixed and floating exchange rates, and the feasibility of alternative anti-inflationary policies. These topics are examined from the perspective of the history of economic doctrines as well as from that of modern economic analysis. The purpose is to indicate the basic similarities in classical and current analyses of inflation and to demonstrate that virtually all of the ideas, arguments, and policy views underlying modern inflation debates have their roots in earlier policy controversies. In this connection, the collection incorporates additional essays dealing with the monetarist-nonmonetarist debate, the exchange rate doctrines of early monetary theorists, the historical evolution of the money demand concept, and the policy lessons of the German hyperinflation. Finally, because inflation is primarily a monetary phenomenon in the sense that it cannot long continue without the monetary growth necessary to sustain it, this volume emphasizes inflation theories that highlight the relationship between money and prices and that strongly support a policy of strong, noninflationary growth. Additional essays deal with Keynes' views on inflation, with Adam Smith's theory of the international adjustment mechanism, with a terms-of-trade-augmented model of the monetary approach to exchange rates, with David Hume's and Henry Thornton's reconciliation of the quantity theory of money with the notion of a stable long-run trade-off between unemployment and inflation, with the early history of the Fisherian distinction between real and nominal interest rates, with the classical conception of the duties of the lender of last resort, and with the anti-growth views prevalent in the early 1970s. These topics are also examined from a monetarist doctrinal/historical position. There are articles on the Phillips curve, the MV = PQ equation of exchange, and the notion of the short-run nonneutrality of money. The text shows how these tools have been employed in inflation analysis, past and present.

The Handbook of Inflation Hedging Investments $79.95 Invaluable perspectives on the progress of inflation protection. Recent interest rate increases signal a return to the days of less benign inflation. The Handbook of Inflation Hedging Investments discusses effective inflation protection vehicles, along with strategies for integrating them into diversified professional portfolios.

Inflation in a Monetary Union $123.98 This book studies the causes and cures of inflation in a monetary union. It carefully discusses the effects of money growth and output growth on inflation. The focus is on producer inflation, currency depreciation and consumer inflation. For instance, what determines the rate of consumer inflation in Europe, and what in America? Moreover, what determines the rate of consumer inflation in Germany, and what in France? Further topics are real depreciation, nominal and real interest rates, the growth of nominal wages, the growth of producer real wages, and the growth of consumer real wages. Here productivity growth and labour growth play significant roles. Another important issue is target inflation and required money growth. A special feature of this book is the numerical estimation of shock and policy multipliers.

The Inflation-Targeting Debate $25 Over the past fifteen years, a significant number of industrialized and middle-income countries have adopted inflation targeting as a framework for monetary policymaking. As the name suggests, in such inflation-targeting regimes, the central bank is responsible for achieving a publicly announced target for the inflation rate. While the objective of controlling inflation enjoys wide support among both academic experts and policymakers, and while the countries that have followed this model have generally experienced good macroeconomic outcomes, many important questions about inflation targeting remain. In Inflation Targeting, a distinguished group of contributors explores the many underexamined dimensions of inflation targeting—its potential, its successes, and its limitations—from both a theoretical and an empirical standpoint, and for both developed and emerging economies. The volume opens with a discussion of the optimal formulation of inflation-targeting policy and continues with a debate about the desirability of such a model for the United States. The concluding chapters discuss the special problems of inflation targeting in emerging markets, including the Czech Republic, Poland, and Hungary.

Beyond Inflation Targeting (Hardcover) $155 Economists from the Americas, Asia, and Australia report the results of a three-year international research project evaluating the impacts of the inflation-targeting approach to central banking that has dominated the world`s financial industry for the past decade or so. The goal was not just to critique the approach, but to find alternatives to it, and researchers were asked to devise innovative country-specific solutions rather than modifications of the ones already on offer. Introductory material includes the theoretical framework, and the impact of inflation-targeting on class relations and gender. Then the critiques and alternatives begin. Among them are Brazil 1999-2006, five years of competitive and stable real exchange rate in Argentina 2002-07, a general equilibrium assessment of twin-targeting in Turkey, the design of monetary policy in India, the Philippines, and Vietnam. Annotation ¿2010 Book News, Inc., Portland, OR (booknews.com)

Beyond Inflation Targeting (Hardcover) $160.88 Economists from the Americas, Asia, and Australia report the results of a three-year international research project evaluating the impacts of the inflation-targeting approach to central banking that has dominated the world`s financial industry for the past decade or so. The goal was not just to critique the approach, but to find alternatives to it, and researchers were asked to devise innovative country-specific solutions rather than modifications of the ones already on offer. Introductory material includes the theoretical framework, and the impact of inflation-targeting on class relations and gender. Then the critiques and alternatives begin. Among them are Brazil 1999-2006, five years of competitive and stable real exchange rate in Argentina 2002-07, a general equilibrium assessment of twin-targeting in Turkey, the design of monetary policy in India, the Philippines, and Vietnam. Annotation ¿2010 Book News, Inc., Portland, OR (booknews.com)