Journal Article

Central bank independence and inflation expectations: evidence from British index-linked gilts


Abstract: This paper conducts a case study of the impact of the May 6, 1997, announcement of enhanced independence of the Bank of England on estimates of expected future inflation and real interest rates. These are generated from observed yields on conventional and index-linked British gilts. For the longest-term bonds in the study, we find a 34 and 60 bases point decline in expected average future inflation over the life of the bond for one-day and two-week event windows, respectively. These results support the contention that institutional changes alone do affect agents' inflationary expectations.

Keywords: Banks and banking, Central; Great Britain; Inflation (Finance); Bonds - Great Britain;

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File(s): File format is application/pdf http://www.frbsf.org/econrsrch/econrev/98-1/3-14.pdf

Authors

    Spiegel, Mark M.

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1998

Pages: 3-14

Order Number: 1