INDEXED BONDS AND HETEROGENEOUS AGENTS
In: Contemporary economic policy: a journal of Western Economic Association International, Volume 16, Issue 1, p. 77-84
ISSN: 1465-7287
The widespread belief that one can read off the public's expectations of inflation from the yield differential between indexed and conventional bonds ignores the fact that indexed bonds are held largely by those who expect the most inflation. However, holding indexed bonds as a hedge against inflation implies that such bonds have the advantage of being a relatively cheap source of funds.