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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page A Monetary Policy Rule Based on Nominal and Inflation-Indexed Treasury Yields
Brian Sack

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.

Keywords: Monetary policy rule, inflation-indexed debt

Full paper (206 KB PDF)

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Last update: March 12, 2003