Skip to main content
SpringerLink
Log in

Information content of U.S. treasury inflation-indexed bonds

  • Articles
  • Published:
International Advances in Economic Research Aims and scope Submit manuscript

Abstract

U.S. Treasury inflation-indexed bonds are designed to provide a stable real return before taxes. A comparison between these bonds and conventional bonds reveals that the effective real yield of U.S. Treasury inflation-indexed bonds is attractive. The econometric results suggest, however, that the real rate provided by U.S. Treasury inflation-indexed bonds is not independent of inflation, implying that the Fisher hypothesis is contradicted by the data. An implication of negative correlation between the real rate and inflation is that the time to buy U.S. Treasury inflation-indexed bonds is when inflation is low. While the yields on U.S. Treasury inflation-indexed bonds are shown to reflect inflation by a lag of about one month, nominal interest rates do not fully adjust to inflation.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Anderson, Richard. "Monetary Trends,"Federal Reserve Bank of St. Louis, February 1999, p. 1.

  • Bach, L.; Musgrave, R. A. "A Stable Purchasing Power Bond,"Communications, December 1941, pp. 823–5.

  • Barsky, Robert. "The Fisher Hypothesis and the Forecastability and Persistence of Inflation,"Journal of Monetary Economics, 19, 1987, pp. 3–24.

    Article  Google Scholar 

  • Brynjolfsson, John; Faillace, Anthony.Inflation-Protection Bonds, New Hope, PA: Frank Fabozzi Associates, 1997.

    Google Scholar 

  • Crowder, William; Hoffman, Dennis. "The Long-Run Relationship Between Nominal Interest Rates and Inflation: The Fisher Equation Revisited,"Journal of Money, Credit, and Banking, 28, February 1996, pp. 102–18.

    Google Scholar 

  • Evans, Martin; Lewis, Karen. "Do Expected Shifts in Inflation Affect Estimates of the Long-Run Fisher Relation?,"The Journal of Finance, 50, March 1995, pp. 225–53.

    Google Scholar 

  • Fama, Eugene. "Stock Returns, Real Activity, Inflation, and Money,"American Economic Review, 1981, pp. 545–65.

  • Fama, Eugene; Gibbons, M. "Inflation, Real Returns and Capital Investment,"Journal of Monetary Economics, 1982, pp. 297–323.

  • Fisher, Irving.The Theory of Interest: As Determined by Impatience to Spend Income and Opportunity to Invest It, New York, NY: Macmillan, 1930.

    Google Scholar 

  • Forsyth, Randall. "New Dusk? The Long Slide in Interest Rates May be Over,"Barron's, 1999, p. 26.

  • Fried, Joel; Howitt, Peter. "The Effects of Inflation on Real Interest Rates,"The American Economic Review, December 1983, pp. 968–80.

  • Huberman, Gur; Schwert, William. "Information Aggregation, Inflation and the Pricing of Indexed Bonds,"Journal of Political Economy, 93, 1985, pp. 92–114.

    Google Scholar 

  • Huizinga, John; Mishkin, Fredric. "Inflation and Real Interest Rates on Assets with Different Risk Characteristics,"The Journal of Finance, 39, July 1984, pp. 699–714.

    Google Scholar 

  • Kandel, Shmuel; Ofer, Aharon; Sarig, Oded. "Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis,"The Journal of Finance, 51, March 1996, pp. 205–25.

    Google Scholar 

  • Kolluri, Bharat; Ganti, Subrahmanyam. "Empirical Evidence on the Natural Rate Hypothesis and Fisher Effect for the U.S.: 1953–1978,"Journal of Economics and Business, 34, 1982, pp. 241–6.

    Article  Google Scholar 

  • Levi, Maurice; Makin, John. "Fisher, Phillips, Friedman and the Measured Impact of Inflation on Interest,"The Journal of Finance, 34, 1, March 1979, pp. 35–52.

    Google Scholar 

  • Mankiw, Gregory.Macroeconomics, New York, NY: Worth Publishing, 1997.

    Google Scholar 

  • Mishkin, Frederic. "Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions,"The Journal of Finance, 39, December 1984, pp. 1345–57.

    Google Scholar 

  • Siegel, Jeremy.Stocks for the Long Run, New York, NY: McGraw-Hill, 1998.

    Google Scholar 

  • Summers, Lawrence. "The Nonadjustment of Nominal Interest Rates: A Study of the Fisher Effect," in J. Tobin, ed.,Symposium in Memory of Arthur Ekun, Washington, DC: The Brookings Institute, 1983.

    Google Scholar 

  • The Wal Street Journal. Various issues.

  • Woodward, Thomas. "Evidence on the Fisher Effect from U.K. Indexed Bonds,"The Review of Economics and Statistics, 1992, pp. 315–20.

Download references

Author information

Authors and Affiliations

  1. University of Hartford, USA

    Malek Lashgari

Authors
  1. Malek Lashgari
    View author publications

    You can also search for this author in PubMed Google Scholar

Additional information

The author would like to thank Richard A. Cohn and Mahmoud Wahab for their advice and comments.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lashgari, M. Information content of U.S. treasury inflation-indexed bonds. International Advances in Economic Research 6, 520–530 (2000). https://doi.org/10.1007/BF02294969

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF02294969

Keywords

Search

Navigation