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Central bank independence and inflation expectations: evidence from British index-linked gilts

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  • Mark M. Spiegel

Abstract

This paper conducts a case study of the impact of the May 6, 1997, announcement of enhanced independence of the Bank of England on estimates of expected future inflation and real interest rates. These are generated from observed yields on conventional and index-linked British gilts. For the longest-term bonds in the study, we find a 34 and 60 bases point decline in expected average future inflation over the life of the bond for one-day and two-week event windows, respectively. These results support the contention that institutional changes alone do affect agents' inflationary expectations.

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  • Mark M. Spiegel, 1998. "Central bank independence and inflation expectations: evidence from British index-linked gilts," Economic Review, Federal Reserve Bank of San Francisco, pages 3-14.
    • Handle: RePEc:fip:fedfer:y:1998:p:3-14:n:1
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    Cited by:

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    2. Layna Mosley & Victoria Paniagua & Erik Wibbels, 2020. "Moving markets? Government bond investors and microeconomic policy changes," Economics and Politics, Wiley Blackwell, vol. 32(2), pages 197-249, July.
    3. Aleksandra Maslowska, 2008. "Quest for the best: How to measure central bank independence and show its relation with inflation?," Discussion Papers 37, Aboa Centre for Economics.
    4. Thorsten Lehnert & Aleksandar Andonov & Florian Bardong, 2009. "TIPS, Inflation Expectations and the Financial Crisis," LSF Research Working Paper Series 09-09, Luxembourg School of Finance, University of Luxembourg.
    5. Eduard Hochreiter & Tadeusz Kowalski, 2000. "Central banks in European emerging market economies in the 1990s," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(212), pages 45-70.
    6. Hermann Sintim-Aboagye, 2005. "Emerging Economies, Turnover Rates and Inflation Variability: A Comparison of Generalized Maximum Likelihood and SUR Models," Economic Change and Restructuring, Springer, vol. 38(2), pages 167-178, June.
    7. Kamal, Mona, 2010. "الإطار النظرى للتنسيق بين السياستين المالية والنقدية [The Theoretical Framework for the Coordination of Fiscal and Monetary Polices]," MPRA Paper 26856, University Library of Munich, Germany.
    8. Juan Angel Garcia & Adrian van Rixtel, 2007. "Inflation-linked bonds from a central bank perspective," Occasional Papers 0705, Banco de España.
    9. Ms. JoAnne Morris & Mr. Tonny Lybek, 2004. "Central Bank Governance: A Survey of Boards and Management," IMF Working Papers 2004/226, International Monetary Fund.

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