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Indexed Bonds And Heterogeneous Agents

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  • THOMAS MAYER

Abstract

The widespread belief that one can read off the public's expectations of inflation from the yield differential between indexed and conventional bonds ignores the fact that indexed bonds are held largely by those who expect the most inflation. However, holding indexed bonds as a hedge against inflation implies that such bonds have the advantage of being a relatively cheap source of funds. Copyright 1998 Western Economic Association International.

Suggested Citation

  • Thomas Mayer, 1998. "Indexed Bonds And Heterogeneous Agents," Contemporary Economic Policy, Western Economic Association International, vol. 16(1), pages 77-84, January.
  • Handle: RePEc:bla:coecpo:v:16:y:1998:i:1:p:77-84
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    References listed on IDEAS

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    1. Kantor, Laurence G, 1986. "Inflation Uncertainty and Real Economic Activity: An Alternative Approach," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 493-500, August.
    2. Martin Evans & Paul Wachtel, 1993. "Inflation regimes and the sources of inflation uncertainty," Proceedings, Federal Reserve Bank of Cleveland, pages 475-520.
    3. Levhari, David & Liviatan, Nissan, 1976. "Government Intermediation in the Indexed Bonds Market," American Economic Review, American Economic Association, vol. 66(2), pages 186-192, May.
    4. Alston, Richard M & Kearl, J R & Vaughan, Michael B, 1992. "Is There a Consensus among Economists in the 1990's?," American Economic Review, American Economic Association, vol. 82(2), pages 203-209, May.
    5. Evans, Martin, 1991. "Discovering the Link between Inflation Rates and Inflation Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 169-184, May.
    6. Robertson, Donald, 1992. "Term Structure Forecasts of Inflation," Economic Journal, Royal Economic Society, vol. 102(414), pages 1083-1093, September.
    7. Woodward, G Thomas, 1990. "The Real Thing: A Dynamic Profile of the Term Structure of Real Interest Rates and Inflation Expectations in the United Kingdom, 1982-89," The Journal of Business, University of Chicago Press, vol. 63(3), pages 373-398, July.
    8. Boschen, John F, 1986. "The Information Content of Indexed Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 76-87, February.
    9. Hausman,Daniel M., 1992. "The Inexact and Separate Science of Economics," Cambridge Books, Cambridge University Press, number 9780521415019, April.
    10. Zvi Bodie, 1988. "Inflation, Index-Linked Bonds, and Asset Allocation," NBER Working Papers 2793, National Bureau of Economic Research, Inc.
    11. Bryan, Michael F & Gavin, William T, 1986. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 539-544, November.
    12. Robert L. Hetzel, 1992. "Indexed bonds as an aid to monetary policy," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 13-23.
    13. Hausman,Daniel M., 1992. "The Inexact and Separate Science of Economics," Cambridge Books, Cambridge University Press, number 9780521425230, April.
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    Cited by:

    1. James E. Hartley, 1996. "Retrospectives: The Origins of the Representative Agent," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 169-177, Spring.
    2. Christensen, Ian & Frédéric Dion & Christopher Reid, 2004. "Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate," Staff Working Papers 04-43, Bank of Canada.
    3. William Gissy, 1999. "Treasury bill rates and treasury cash reserves," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(4), pages 435-443, December.

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