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Estimating Inflation Expectations using French Government Inflation-Indexed Bonds

Author

Listed:
  • Francisco Alonso

    (Banco de España)

  • Roberto Blanco

    (Banco de España)

  • Ana del Río

    (Banco de España)

Abstract

Inflation-indexed bonds are fixed-income securities whose nominal cash flows are adjusted to an inflation index. In countries where these securities exist, inflation expectations are sometimes estimated as the spread between the nominal yield on a conventional bond and the real yield on an indexed bond with similar maturity and issued in the same currency and by the same issuer. However, this indicator known as the break-even rate, may estimate inflation expectations with some biases. In this paper, we discuss, and quantify where possible, the size of such biases.

Suggested Citation

  • Francisco Alonso & Roberto Blanco & Ana del Río, 2001. "Estimating Inflation Expectations using French Government Inflation-Indexed Bonds," Working Papers 0111, Banco de España.
    • Handle: RePEc:bde:wpaper:0111
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/01/Fic/dt0111e.pdf
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    References listed on IDEAS

    as
    1. Martin D. D. Evans, 1998. "Real Rates, Expected Inflation, and Inflation Risk Premia," Journal of Finance, American Finance Association, vol. 53(1), pages 187-218, February.
    2. Brian P. Sack, 2000. "Deriving inflation expectations from nominal and inflation-indexed Treasury yields," Finance and Economics Discussion Series 2000-33, Board of Governors of the Federal Reserve System (U.S.).
    3. Frederic S. Mishkin, 1990. "The Information in the Longer Maturity Term Structure about Future Inflation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 815-828.
    4. Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
    5. Robert J. Barro, 1995. "Optimal Debt Management," NBER Working Papers 5327, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Francisco Jareno, 2008. "Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3159-3171.
    2. Covarrubias, Enrique & Hernández-del-Valle, Gerardo, 2016. "Inflation expectations derived from a portfolio model," MPRA Paper 69489, University Library of Munich, Germany.
    3. Flávio de Freitas Val & Claudio Henrique da Silveira Barbedo & Marcelo Verdini Maia, 2011. "Inflation expectation and implicit inflation: does market research provide accurate measures?," Brazilian Business Review, Fucape Business School, vol. 8(3), pages 83-100, July.
    4. Juan Angel Garcia & Adrian van Rixtel, 2007. "Inflation-linked bonds from a central bank perspective," Occasional Papers 0705, Banco de España.
    5. Díaz, Antonio & Jareño, Francisco, 2009. "Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case," Research in International Business and Finance, Elsevier, vol. 23(3), pages 349-368, September.

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    More about this item

    Keywords

    inflation; expectations; income;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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