Central bank independence and inflation expectations: evidence from British index-linked gilts
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.
Volume (Year): (1998)
Issue (Month): ()
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