The Bank of Canada has released the Bank of Canada Review – Spring 2010 with feature articles:
- Crude Oil Futures: A Crystal Ball?
- Inflation Expectations and the Conduct of Monetary Policy: A Review of Recent Evidence and Experience
- Monetary Policy Rules in an Uncertain Environment
- An Uncertain Past: Data Revisions and Monetary Policy in Canada
The second article notes:
In the Canadian context, Christensen, Dion, and Reid (2004) find that the BEIR in Canada is not a reliable measure of inflation expectations because of the maturity and liquidity characteristics of Real Return Bonds. Simply, Canada’s Real Return Bonds have a 30-year maturity and are considerably less liquid than conventional 30-year bonds, which leads to frequent distortions in the measure of expected inflation. For the United States, Ang, Bekaert, and Wei (2007) find that survey data outperform market-based measures, times-series ARIMA models, and regressions using data on real economic activity. Consequently, the most recent evidence suggests that surveys may be a more reliable guide to inflation expectations for the United States and Canada.
The references are to
- Christensen, I., F. Dion, and C. Reid. 2004. “Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate.” Bank of Canada Working Paper No. 2004–43.
- Ang, A., G. Bekaert, and M. Wei. 2007. “Do Macro Variables, Asset Markets, or Surveys Forecast Inflation Better?” Journal of Monetary Economics 54 (4): 1163–1212.
Christensen, Dion and Reid also published in the BoC Review of Autumn 2004; this paper has been summarized on PrefBlog.
The paper by Ang, Bekaert & Wei has not been reviewed here, but it has been referenced in Term Premia on Real-Return Bonds in the UK.