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We study how differences in beliefs about expected inflation affect the nominal term structure when investors have “catching up with the Joneses” preferences. In the model, “catching up with the Joneses” preferences help to match the level and slope of yields as well as the level of...
Persistent link: https://www.econbiz.de/10012823519
We show theoretically that inflation disagreement drives a wedge between real and nominal yields and raises their levels and volatilities. We demonstrate empirically that an inflation disagreement increase of one standard deviation raises real and nominal yields and their volatilities,...
Persistent link: https://www.econbiz.de/10012970596
We show that inflation disagreement, not just expected inflation, has an impact on nominal interest rates. In contrast to expected inflation, which mainly affects the wedge between real and nominal yields, inflation disagreement affects nominal yields predominantly through its impact on the real...
Persistent link: https://www.econbiz.de/10012857289
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