Heterogeneous inflationary expectations,Fisher's theory of interest and the allocative efficiency of the bond market |
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Authors: | Alex Cukierman |
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Affiliation: | Carnegie-Mellon University, Pittsburgh, PA 15213, USA;University of Tel Aviv, Tel Aviv, Israel |
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Abstract: | This letter considers the consequences of heterogeneous inflationary expectations for Fisher's theory of interest. It is further shown that divergent and erroneous expectations cause welfare losses which increase when either the variance of expectations or of actualinflation increase. |
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