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Inflation expectations and Real Return Bonds

Author

Listed:
  • Agathe Côté
  • Jocelyn Jacob
  • John Nelmes
  • Miles Whittingham

    (Bank of Canada)

Abstract

The existence of a market for Real Return Bonds in Canada provides a direct tool with which to measure market expectations of inflation by comparing the yields on these bonds with those on conventional Government of Canada long-term bonds. However, there are other factors besides inflation expectations that may affect the yield differential. After reviewing these factors, the authors note that they can lead to a potentially large bias in the level of inflation expectations. The changes in the differential over time may, nonetheless, be a good indicator of movements in long-run inflation expectations. Based on this measure, expectations of long-run inflation have declined since late 1994.

Suggested Citation

  • Agathe Côté & Jocelyn Jacob & John Nelmes & Miles Whittingham, 1996. "Inflation expectations and Real Return Bonds," Bank of Canada Review, Bank of Canada, vol. 1996(Summer), pages 41-53.
    • Handle: RePEc:bca:bcarev:v:1996:y:1996:i:summer96:p:41-53
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    Citations

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    Cited by:

    1. Robert Amano & Donald Coletti & Tiff Macklem, 1998. "Monetary rules when economic behaviour changes," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    2. Sharon Kozicki & P. A. Tinsley, 2006. "Survey-Based Estimates of the Term Structure of Expected U.S. Inflation," Staff Working Papers 06-46, Bank of Canada.
    3. Gilbert Cette & Marielle de Jong, 2013. "Breakeven inflation rates and their puzzling correlation relationships," Applied Economics, Taylor & Francis Journals, vol. 45(18), pages 2579-2585, June.
    4. Peter S. Spiro, 2003. "Evidence on inflation expectations from Canadian real return bonds," Macroeconomics 0312004, University Library of Munich, Germany.
    5. Laatsch, Francis E. & Klein, Daniel P., 2005. "The nominal duration of TIPS bonds," Review of Financial Economics, Elsevier, vol. 14(1), pages 47-60.
    6. Sharon Kozicki & P. A. Tinsley, 2012. "Effective Use of Survey Information in Estimating the Evolution of Expected Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(1), pages 145-169, February.
    7. Ian Christensen & Frédéric Dion & Christopher Reid, 2004. "Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate," Staff Working Papers 04-43, Bank of Canada.
    8. Laatsch, Francis E. & Klein, Daniel P., 2003. "Nominal rates, real rates, and expected inflation: Results from a study of U.S. Treasury Inflation-Protected Securities," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(3), pages 405-417.
    9. Francis E. Laatsch & Daniel P. Klein, 2005. "The nominal duration of TIPS bonds," Review of Financial Economics, John Wiley & Sons, vol. 14(1), pages 47-60.
    10. Peters, David W., 2007. "The behavior of government of Canada real return bond returns," International Review of Financial Analysis, Elsevier, vol. 16(2), pages 152-171.
    11. David Bolder & David Stréliski, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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