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The difficult art of eliciting long-run inflation expectations from government bond prices


  • Carlos E. Zarazaga


Central banks are always concerned with keeping long-run inflation expectations well anchored at some implicit or explicit low target inflation rate. To that end, they are constantly on the lookout for indicators that can gauge those expectations accurately. One such indicator frequently reported in the specialized financial press and by central banks around the world is constructed with the forward rates technique, which exploits price differentials between government bonds of various maturities. This article examines the theory behind those indicators and assesses the extent to which they can be trusted in practice.

Suggested Citation

  • Carlos E. Zarazaga, 2010. "The difficult art of eliciting long-run inflation expectations from government bond prices," Staff Papers, Federal Reserve Bank of Dallas, issue Mar.
  • Handle: RePEc:fip:feddst:y:2010:i:mar:n:9

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    References listed on IDEAS

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    6. Fama, Eugene F., 1990. "Term-structure forecasts of interest rates, inflation and real returns," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 59-76, January.
    7. Stambaugh, Robert F., 1988. "The information in forward rates : Implications for models of the term structure," Journal of Financial Economics, Elsevier, vol. 21(1), pages 41-70, May.
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