Inflation Expectations, Interest Rates and Arbitrary Income Transfers

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Title Inflation Expectations, Interest Rates and Arbitrary Income Transfers
Author Makin, Anthony John
Journal Name Australian Economic Review
Editor Ian MacDonald, Mark Wooden, Ross Williams
Year Published 2003
Place of publication Australia
Publisher Blackwell Publishing
Abstract Unexpected inflation, disinflation or deflation causes arbitrary income transfers between an economy's borrowers and lenders. This redistribution results from distorted real interest rates that are too high when price level changes are over-predicted and too low when under-predicted. This paper shows that in Australia's case, inflation expectations were mostly biased upwards throughout the 1990's, according to the Melbourne Institute series and to a new derived series based on bond yields, implying that real interest rates were too high over this time. In turn, this caused substantial arbitrary income transfers between debtors to creditors, estimated to have averaged up to three percent of GDP over the period.
Peer Reviewed Yes
Published Yes
Alternative URI http://dx.doi.org/10.1111/1467-8462.00287
Volume 36
Issue Number 3
Page from 283
Page to 290
ISSN 0004-9018
Date Accessioned 2006-07-10
Date Available 2009-09-29T23:13:33Z
Language en_AU
Research Centre Griffith Asia Institute
Faculty Griffith Business School
Subject PRE2009-Macroeconomics (incl. Monetary and Fiscal Theory)
URI http://hdl.handle.net/10072/25868
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1x

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