IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Conditional Indexation Bias in Yields Reported on Inflation-Indexed Securities with Special Reference to UDIBONOS and TIPS

  • George M. von Furstenberg

    (Department of Economics, Indiana University. Bloomington, IN. USA)

  • Michael T. Gapen

    (Department of Economics, Indiana University. Bloomington, IN. USA.)

The real rate of return on inflation-indexed government securities is calculated and published as if indexation succeeded perfectly in keeping the real value of coupon and principal payments unchanged. In fact the procedure of indexing to the lagged momentum of the seasonally unadjusted CPI gives rise to three types of indexation bias that may change the expected real value of the future stream of payments in relation to the current par value. These biases are due to i) seasonality, ii) non-seasonal fluctuations in reported inflation rates, and iii) any expected “permanent” changes in future rates of inflation (or the reporting thereof) being capable of creating predictable changes in the real value of the inflation-adjusted principal with the indexation procedure actually in force. They are one more, directly quantifiable, reason why the reported yields do not provide the long-sought definite revelation of the riskless real rate of interest and hence of the expected rate of inflation by comparison with nominal interest rates.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Article provided by in its journal Economia Mexicana NUEVA EPOCA.

Volume (Year): VII (1998)
Issue (Month): 2 (July-December)
Pages: 149-188

in new window

Handle: RePEc:emc:ecomex:v:7:y:1998:i:2:p:149-188
Contact details of provider:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Tzavalis, Elias & Wickens, M. R., 1996. "Forecasting inflation from the term structure," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 103-122, May.
  2. Ben S. Bernanke & Michael Woodford, 1997. "Inflation Forecasts and Monetary Policy," NBER Working Papers 6157, National Bureau of Economic Research, Inc.
  3. Martin Evans & Paul Wachtel, 1993. "Inflation regimes and the sources of inflation uncertainty," Proceedings, Federal Reserve Bank of Cleveland, pages 475-520.
  4. Frederic S. Mishkin, 1988. "What Does the Term Structure Tell Us About Future Inflation?," NBER Working Papers 2626, National Bureau of Economic Research, Inc.
  5. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
  6. Soderlind, Paul & Svensson, Lars, 1997. "New techniques to extract market expectations from financial instruments," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 383-429, October.
  7. Barr, David & Campbell, John, 1997. "Inflation, Real Interest Rates, and the Bond Market: A Study of UK Nominal and Index-Linked Government Bond Prices," Scholarly Articles 3163261, Harvard University Department of Economics.
  8. Robert J. Shiller, 1997. "Public Resistance to Indexation: A Puzzle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 159-228.
  9. Mussa, Michael, 1976. " The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy under a Regime of Controlled Floating," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 229-48.
  10. Lahiri, Kajal & Teigland, Christie & Zaporowski, Mark, 1988. "Interest Rates and the Subjective Probability Distribution of Inflation Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 233-48, May.
  11. Fama, Eugene F. & Gibbons, Michael R., 1984. "A comparison of inflation forecasts," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 327-348, May.
  12. Garrison, Roger W & White, Lawrence H, 1997. "Can Monetary Stabilization Policy Be Improved by CPI Futures Targeting? A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 535-41, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:emc:ecomex:v:7:y:1998:i:2:p:149-188. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ricardo Tiscareño)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.