Wednesday, January 9, 2013
Inflation Expectations are at a Record Low—or are they Soaring?
Both private investors and policymakers pay close attention to estimates of expected inflation. If investors expect inflation to be high, long-term, fixed-rate securities become less attractive, and market prices of those securities fall. If central bankers see that investors’ inflation expectations are high, they may decide to tighten policy. The trouble is, neither investors nor central bankers can observe inflation expectations directly, and not all methods for inferring expectations from market data give the same result. Sometimes, as at present, different estimation methods even point in opposite directions.>>>Read more