Another observation worth recording is absence of
inflation indexed bonds and lack of inflation expectation surveys in the past that limit market's capacity to form expectations over a longer horizon.
The Reserve Bank of India (RBI) had recommended to the finance ministry that the government buy back
Inflation Indexed Bonds (IIBs) linked to the wholesale price index (WPI), reasoning that this is no longer the most vital measure of prices.
Or the risk of investing in long-term
inflation indexed bonds from the perspective of a short-horizon investor?
The RBI said that in consultation with Government of India, it has decided to launch
Inflation Indexed Bonds (IIBs).
These could be in the form of
inflation indexed bonds or inflation indexed national security certificates.
(10) More specifically, our theory is that inflation indexed bonds, as a component of wealth and via the Pigou effect, cause aggregate demand to become more inelastic with respect to the general price level.
In particular, when aggregate supply shocks occur, the change in real GDP is smaller and the change in the price level is larger when inflation indexed bonds exist and the elasticity of aggregate demand with respect to the general price level is consequently lower.
Treasury began the quarterly issuance of
inflation indexed bonds, called Treasury Inflation Protection Securities (TIPS).
One sign that it's benign is the fact that the Treasury introduced
inflation indexed bonds, called TIPS--Treasury Inflation Protection Securities--which in the current environment are generating a lot of interest.
Thus, the interest rate will remain fixed, but the amount of each interest payment will vary with the CPI-U Notice 96-51(34) explains the content of planned proposed and temporary regulations that will apply to all
inflation indexed bonds.
For instance, in the financial sector, the announcement of
inflation indexed bonds would serve as a hedge against inflation and would wean individuals away from purchase of gold.
He also introduces a new way to calibrate forward looking central bank policy rules using financial market data on real interest rates on
inflation indexed bonds and breakeven inflation rates instead of the instrumental variable, GMM approach introduced in his earlier work.
