Keywords: Monetary policy rule, inflation-indexed debt
Abstract: The yields on nominal and inflation-indexed Treasury debt securities can be used
to derive a proxy for the inflation expectations of financial market participants.
This paper finds that one such measure has been an effective predictor of monetary
policy decisions by the Federal Reserve since 1999. This finding suggests that the
inflation compensation measure serves as a summary statistic for the factors that
drive monetary policy decisions.
Full paper (206 KB PDF)
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Last update: March 12, 2003