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Inflation expectations and Real Return Bonds

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  • Agathe Côté
  • Jocelyn Jacob
  • John Nelmes
  • Miles Whittingham

    (Bank of Canada)

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    Abstract

    The existence of a market for Real Return Bonds in Canada provides a direct tool with which to measure market expectations of inflation by comparing the yields on these bonds with those on conventional Government of Canada long-term bonds. However, there are other factors besides inflation expectations that may affect the yield differential. After reviewing these factors, the authors note that they can lead to a potentially large bias in the level of inflation expectations. The changes in the differential over time may, nonetheless, be a good indicator of movements in long-run inflation expectations. Based on this measure, expectations of long-run inflation have declined since late 1994.

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    Bibliographic Info

    Article provided by Bank of Canada in its journal Bank of Canada Review.

    Volume (Year): 1996 (1996)
    Issue (Month): Summer ()
    Pages: 41-53

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    Handle: RePEc:bca:bcarev:v:1996:y:1996:i:summer96:p:41-53

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    Cited by:
    1. Peters, David W., 2007. "The behavior of government of Canada real return bond returns," International Review of Financial Analysis, Elsevier, vol. 16(2), pages 152-171.
    2. Sharon Kozicki & P.A. Tinsley, 2006. "Survey-Based Estimates of the Term Structure of Expected U.S. Inflation," Working Papers 06-46, Bank of Canada.
    3. Laatsch, Francis E. & Klein, Daniel P., 2005. "The nominal duration of TIPS bonds," Review of Financial Economics, Elsevier, vol. 14(1), pages 47-60.
    4. Laatsch, Francis E. & Klein, Daniel P., 2003. "Nominal rates, real rates, and expected inflation: Results from a study of U.S. Treasury Inflation-Protected Securities," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(3), pages 405-417.
    5. Robert Amano & Don Coletti & Tiff Macklem, 1999. "Monetary Rules When Economic Behaviour Changes," Cahiers de recherche CREFE / CREFE Working Papers 81, CREFE, Université du Québec à Montréal.

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