Budget Deficits Expected Inflation and Short-Term Real Interest Rates: Evidence for the U.S.

1990 ◽  
Vol 4 (3) ◽  
pp. 41-53 ◽  
Author(s):  
David W. Findlay
Keyword(s):  
Interest Rates ◽  
Budget Deficits ◽  
Short Term ◽  
Real Interest Rates ◽  
Expected Inflation ◽  
The U.S

scholarly journals A New Approach to Gauging Inflation Expectations

2009 ◽  
pp. 1-4
Author(s):  
Joseph G. Haubrich
Keyword(s):  
Interest Rates ◽  
Risk Premium ◽  
New Method ◽  
Inflation Expectations ◽  
Real Interest Rates ◽  
Inflation Risk ◽  
New Approach ◽  
Expected Inflation ◽  
Inflation Risk Premium

This Economic Commentary explains a relatively new method of uncovering inflation expectations, real interest rates, and an inflation-risk premium. It provides estimates of expected inflation from one month to 30 years, an estimate of the inflation-risk premium, and a measure of real interest rates, particularly a short (one-month) rate, which is not readily available from the TIPS market. Calculations using the method suggest that longer-term inflation expectations remain near historic lows. Furthermore, the inflation-risk premium is also low, which in the model means that inflation is not expected to deviate far from expectations.

Treasury Bills, Bonds And Sector Inflation Indices: A Spectral Analysis

2011 ◽  
Vol 19 (2) ◽  
Author(s):  
Maurice Larrain
Keyword(s):  
Interest Rates ◽  
Raw Materials ◽  
Consumer Price Index ◽  
Real Interest Rates ◽  
Financial Model ◽  
Treasury Bills ◽  
Taylor Rules ◽  
Expected Inflation ◽  
Nominal Interest Rates ◽  
Long Time

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">This paper uses spectral and correlation techniques to analyze the relationship between several inflation indicators and nominal interest rates. Empirical definitions of real interest rates reduce to stating real rates are equal to nominal interest rates minus expected inflation. To represent a number for inflation, economy-wide measures such as the GDP deflator or the Consumer Price Index are employed. This uncritical usage results more often than not in implausible values for real interest rates. In particular, volatile negative real rates are encountered for prolonged periods ranging from six months to up to three years. Such long time intervals for negative real rates amounts to accepting the unrealistic proposition that profit maximizing lenders, such as commercial bank officers, pay hefty fees to borrowers to have them use their institution's loanable funds. This paper questions the effectiveness of GDP or CPI inflation measures in surrogating for expected inflation. We find instead that narrower sector (industry) inflation indices such as fuels or raw materials prices appear to be improved measures. The issue matters since accurate real interest rate estimates are necessary for policy (Taylor rules), financial model evaluation, and discounting.<strong style="mso-bidi-font-weight: normal;"></strong></span></span></p>

scholarly journals The Ricardian Approach to Budget Deficits

1989 ◽  
Vol 3 (2) ◽  
pp. 37-54 ◽  
Author(s):  
Robert J Barro
Keyword(s):  
Interest Rates ◽  
The United States ◽  
Alternative Theory ◽  
Budget Deficits ◽  
Large Current ◽  
Time Period ◽  
Ricardian Approach ◽  
David Ricardo ◽  
Harmful Effects ◽  
The U.S

In recent years there has been a lot of discussion about U.S. budget deficits. Many economists and other observers have viewed these deficits as harmful to the U.S. and world economies. The supposed harmful effects include high real interest rates, low saving, low rates of economic growth, large current-account deficits in the United States and other countries with large budget deficits, and either a high or low dollar (depending apparently on the time period). This crisis scenario has been hard to maintain along with the robust performance of the U.S. economy since late 1982. Persistent budget deficits have increased economists' interest in theories and evidence about fiscal policy. At the same time, the conflict between standard predictions and actual outcomes in the U.S. economy has, I think, increased economists' willingness to consider approaches that depart from the standard paradigm. In this paper, I will focus on the alternative theory that is associated with the name of David Ricardo.

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