NOMINAL INTEREST-RATES AS INDICATORS OF INFLATION-EXPECTATIONS

The properties of nominal interst rates as indicators of inflation exp ectations are evaluated. Are they unbiased? How precise are they? To a rrive at robust results, a range of different methods are applied on s everal US and UK data sets. The results show that the interest rate le vel is a reasonably good indicator of the level of inflation expectati ons. However, changes in interest rates are poor indicators of changes inflation expectations.