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Christina Torres-Garcia

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    2000 Research

    Abstract: Christy's Hair Salon

    Mentor: Dr. Leo Simpson, Business

    1999 Research

    Abstract: (1+Ɩ)=(1+r)(1+π) Disputing Fisher's Theory

    Mentor: Dr. David Eagle, Economics

    One of the most widely known theories of Irving Fisher is the Theory of Interest. This Theory states that the normal interest rate is equal to real interest rate plus inflation rate      ( i = r + π ). According to Fisher, movements in nominal bond yields originate from two sources: changes in real interest rates and changes in expected inflation. Fisher's theory provides a guide for investigating the extent to which long-term bond yields serve as reliable indicators of long-term inflationary expectations. In particular, if the long-term interest rate is uncorrelated with inflation, then a 1% increase or decrease in long-term bond yields signals a 1% increase or decrease in expected inflation.

    In this study, we assess the practical usefulness of long-term bond yields as indicators of long-term inflationary expectations. We investigate whether or not the real interest rate is uncorrelated with expected inflation, by using observed real yields on inflation index bonds in the UK.

     

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    Eastern Washington University
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