Real Rates, Expected Inflation, and Inflation Risk Premia

1998-02-01articleThe Journal of Finance258 citationsclosed

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Stochastic processes and financial applications

Abstract

This paper studies the term structure of real rates, expected inflation, and inflation risk premia. The analysis is based on new estimates of the real term structure derived from the prices of index‐linked and nominal debt in the U.K. I find strong evidence to reject both the Fisher Hypothesis and versions of the Expectations Hypothesis for real rates. The estimates also imply the presence of time‐varying inflation risk premia throughout the term structure.

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