Conditional Indexation Bias in Yields Reported on Inflation-Indexed Securities with Special Reference to UDIBONOS and TIPS
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.
Volume (Year): VII (1998)
Issue (Month): 2 (July-December)
|Contact details of provider:|
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.:
- Ben S. Bernanke & Michael Woodford, 1997.
"Inflation forecasts and monetary policy,"
Federal Reserve Bank of Cleveland, pages 653-686.
- 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.
- Charles Engel, 1995. "The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence," NBER Working Papers 5312, National Bureau of Economic Research, Inc.
- 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.
- Tzavalis, Elias & Wickens, M. R., 1996.
"Forecasting inflation from the term structure,"
Journal of Empirical Finance,
Elsevier, vol. 3(1), pages 103-122, May.
- R. W. Hafer & Scott E. Hein, 1984.
"On the accuracy of time series, interest rate and survey forecasts of inflation,"
1984-022, Federal Reserve Bank of St. Louis.
- Hafer, R W & Hein, Scott E, 1985. "On the Accuracy of Time-Series, Interest Rate, and Survey Forecasts of Inflation," The Journal of Business, University of Chicago Press, vol. 58(4), pages 377-98, October.
- 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.
- Barr, David & Campbell, John, 1997.
"Inflation, Real Interest Rates, and the Bond Market: A Study of UK Nominal and Index-Linked Government Bond Prices,"
3163261, Harvard University Department of Economics.
- David Barr & John Campbell, . "Inflation, real interest rates and the bond market: a study of UK nominal and index-linked Government bond prices," CERF Discussion Paper Series 95-09, Economics and Finance Section, School of Social Sciences, Brunel University.
- David G. Barr & John Y. Campbell, 1996. "Inflation, Real Interest Rates, and the Bond Market: A Study of UK Nominal and Index-Linked Government Bond Prices," NBER Working Papers 5821, National Bureau of Economic Research, Inc.
- 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.
- Frederic S. Mishkin, 1988.
"What Does the Term Structure Tell Us About Future Inflation?,"
NBER Working Papers
2626, National Bureau of Economic Research, Inc.
- Mishkin, Frederic S., 1990. "What does the term structure tell us about future inflation?," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 77-95, January.
- Mishkin, F.S., 1988. "What Does The Term Structure Tell Us About Future Inflation?," Papers fb-_88-29, Columbia - Graduate School of Business.
- Martin Evans & Paul Wachtel, 1993. "Inflation regimes and the sources of inflation uncertainty," Proceedings, Federal Reserve Bank of Cleveland, pages 475-520.
- Söderlind, Paul & Svensson, Lars E.O., 1996.
"New Techniques to Extract Market expectations from Financial Instruments,"
SSE/EFI Working Paper Series in Economics and Finance
142, Stockholm School of Economics.
- 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.
- Paul Soderlind & Lars E. O. Svensson, 1997. "New Techniques to Extract Market Expectations from Financial Instruments," NBER Working Papers 5877, National Bureau of Economic Research, Inc.
- Söderlind, Paul & Svensson, Lars E.O., 1997. "New Techniques to Extract Market Expectations from Financial Instruments," Seminar Papers 621, Stockholm University, Institute for International Economic Studies.
- Söderlind, Paul & Svensson, Lars E O, 1997. "New Techniques to Extract Market Expectations from Financial Instruments," CEPR Discussion Papers 1556, C.E.P.R. Discussion Papers.
- Soderlind, P & Svensson, L-E-O, 1996. "New Techniques to Extract Market Expectations from Financial Instruments," Papers 621, Stockholm - International Economic Studies.
- Fama, Eugene F. & Gibbons, Michael R., 1984. "A comparison of inflation forecasts," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 327-348, May.
- 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.
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 references are entirely missing, you can add them using this form.