This paper estimates expected future real interest rates and inflation rates from observed prices of UK government …-linked bonds. It assumes that expected log returns on all bonds are equal, and that expected real interest rates and inflation … inflation expectations forecast actual future inflation more accurately than nominal yields do. The estimated real interest rate …

these securities represent the only true long-run hedge against inflation risk. CPI-linked bonds make possible the creation … inflation-protected retirement annuities. The introduction of index-linked bonds eliminates one of the main obstacles to the …

This paper empirically analyzes the Expectations Hypothesis (EH) in inflation-indexed (or real) bonds and in nominal … bonds in the US and in the UK. We strongly reject the EH in inflation-indexed bonds, and also confirm and update the … premium, or the break-even inflation risk premium, also varies over time. We argue that the time variation in real bond risk …

, demand shocks, and monetary policy are the fundamental drivers of inflation. Endogenously time-varying risk premia imply that …

Unexpected inflation devalues nominal government bonds. It must therefore correspond to a decline in expected future … each component via a vector autoregression, in response to inflation, recession, surplus and discount rate shocks. Discount … rates, rather than deficits, account for most inflation variation. Smooth inflation that slowly devalues outstanding long …

expected inflation. Such nominally sticky discount rates imply that increases in expected inflation directly lower firms' real … shocks and higher investment in response to government spending. Sticky discount rates imply that inflation has real effects … inflation expectations and permanently lowers the long-run inflation target in response to expansionary shocks, even when shocks …