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Short-Term Movements of Long-Term Real Interest Rates: Evidence from the U.K. Indexed Bond Market

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  • James A. Wilcox

Abstract

The central goverment now issues both nominal and iflation indexed long-term bonds in the United Kingdom. The difference in their yields provides one measure of the long-term expevted rate of inflation. The evidence suggests that higher long-term, expected , real yields are associated with forecasts of higher income, with tigher monetary policy, and with positive aggregate supply shocks. Changes in the short-termgrowth rate of the monbetary base, which presumably capture the so-called liquidity effect on the short-terminterst rates, do not perceptibly alterlong-term real rates. Long-term real rates also appear to be unaffected by the rate of expected inflation. Comparison with nominal interest rate equiation estimates reveals that conclusions about the effect of all variables are extremely sensitive to the choice of a proxy for expected long-term inflation.

Suggested Citation

  • James A. Wilcox, 1985. "Short-Term Movements of Long-Term Real Interest Rates: Evidence from the U.K. Indexed Bond Market," NBER Working Papers 1543, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1543
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    References listed on IDEAS

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    Cited by:

    1. Eva Marikova Leeds, 1991. "The Market for Indexed Financial Instruments," Eastern Economic Journal, Eastern Economic Association, vol. 17(3), pages 291-296, Jul-Sep.

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