Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/72709
Authors: 
Reschreiter, Andreas
Year of Publication: 
2006
Series/Report no.: 
Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 199
Abstract: 
This paper investigates the impact of revisions in inflation expectations on the prices of UK inflation-indexed and conventional government bonds with a vector autoregressive (VAR) model. Downwards revisions of inflation expectations are associated with unexpected increases in the prices of conventional bonds, but the prices of indexed bonds are not significantly affected. This suggests that indexed bonds protect investors against inflation while nominal bonds are exposed to changing monetary conditions. This is consistent with the view that indexed bonds avoid the inflation risk premium of conventional bonds and reduce the government's long-run borrowing costs.
Subjects: 
conventional and indexed bonds
inflation
macroeconomy
VAR
JEL: 
E43
G12
Document Type: 
Working Paper

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