Inflation indexed bonds and monetary theory

Laurence Weiss ()

Economic Theory, 2006, vol. 27, issue 1, 275 pages

Abstract: The introduction of inflation indexed bonds, or “tips” - treasury inflation protected securities, provides important new data for analyzing the state of the economy and for assessing the validity and significance of macroeconomic theories. This note will show that tip yields contain information for predicting real variables. Furthermore, the inclusion of tip yields supersedes the role of nominal variables - both the ten year nominal bond and fed funds rate - for incrementally predicting (Granger causing) real variables. The data support the notion of block exogeneity - the lack of feedback from nominal to real variables. This result would appear to be inconsistent with the idea that monetary policy, as implemented through changes in the fed funds rate, has had measurable real effects over this, admittedly brief, sample (See for example Christiano, Eichenbaum, and Evans (1998) who argue that the impulse response functions to fed fund shocks can be used to estimate the response to unanticipated policy shocks. However they find that these have not been a major source of output fluctuations. The present study implies that such inferences are not robust to the introduction of tip yields). Copyright Springer-Verlag Berlin/Heidelberg 2006

Keywords: Inflation indexed bonds; Nominal rates; Rational expectations; Causality. (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00199-004-0596-z (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:joecth:v:27:y:2006:i:1:p:271-275

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-004-0596-z

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().