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

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-t...

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Bibliographic Details
Published in:	Economic review (San Francisco) 1998-01 (1), p.3
Main Author:	Spiegel, Mark M
Format:	Article
Language:	eng
Subjects:	Case studies Central banks Economic forecasts Economic theory European Monetary Union Federal Reserve monetary policy Independence Inflation Interest rates Statistical analysis Studies Treasuries
Online Access:	Get full text
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Summary:	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, a 34 and 60 basis point decline is found in expected average future inflation over the life of the bond for 1-day and 2-week event windows, respectively. These results support the contention that institutional changes alone do affect agents' inflationary expectations.
ISSN:	0363-0021 2163-5870