Long-term inflation

This may all seem rather convoluted, so a simple example might suffice to make the point clear. Let us assume that the average bond investor expects future long-term inflation to be 2.5%, and that the average investor is inflation risk averse, so be prepared to pay a 0.25% risk premium. On this basis alone, we would expect observed break-even inflation to be 2.75%. Now let us say that the govermnent also has inflationary expectations of 2.5%, but it prefers real liabilities to nominal liabilities, and places a 0.25% yield value on that preference. It will prefer to sell inflation-linked bonds rather than nominal bonds until break-even inflation falls to 2.25%. 

Are the indirect costs more important than these direct costs Has innovation in the chemical industry been supressed by TSCA How reliable are the assumptions that such suppression has occurred Can TSCA s effects be separated from those of inflation, tax rate, industrial R/D budgets, and long-term maturation of the industry ... 

Inflation risk occurs when inflation increases, but the return on one s investment does not keep pace with it. An example might be your savings account paying 1 percent interest when inflation is 3 percent. Business-cycle risk refers to the fact that your investments may mirror the fluctuations in the business cycle. For example, stocks typically decline when the economy first enters a recession because the earnings of companies normally decline during recessions. Interest-rate risk may occur when interest rates rise, but you have locked into a lower rate on a long-term bond. For example, if you purchase a 4 percent bond for 10 years, you face the... 

These results suggest that the risk of mania or hypomania in the long-term treatment of recurrent unipolar depressed patients is relatively small. The 12 placebo-controlled studies of acute treatment in less carefully defined samples support higher incidence rates (around 6-7% for hypomania and 1-2% for mania), but these figures may be inflated owing to the inclusion of bipolar patients with a high risk of a spontaneous switch (94). 

Another method is to model the statistical distribution of the price (or margin), as illustrated in Figure 6.4e. At its simplest, this method involves taking the average price, adjusted for inflation, over a recent period. This method can miss long-term trends in the data, and few prices follow any of the more commonly used distributions. It is useful, however, in combination with sensitivity analysis methods such as Monte Carlo Simulation (see Section 6.8). 

Freidenfelds, J., and Kennedy, M., (1979), Price Inflation and Long-Term Present-Worth Studies, Engineering Economist, Vol. 24, No. 3, pp. 143-160. 

Traditionally, information on inflation expectations has been obtained by survey methods or theoretical methods. These have not proved reliable however, and were followed only because of the absence of an inflation-indexed futures market. Certain methods for assessing market inflation expectations are not analytically valid for example, the suggestion that the spread between short- and long-term bond yields cannot be taken to be a measure of inflation expectation, because there are other factors that drive this yield spread, and not just inflation risk premium. 

From the discussion in chapter we are aware that there are range of factors that impact on the shape and level of the yield curve. A combination of economic and non-economic factors are involved. A key factor is investor expectations, with respect to the level of inflation, and the level of real interest rates in the future. In the real world the market does not assume that either of these two factors is constant, however given that there is a high level uncertainty over anything longer than the short-term, generally there is an assumption about both inflation and interest rates to move towards some form of equilibrium in the long-term. 

This chapter provides an overview of the structure and function of mechanical ventilators. Mechanical ventilators, which are often also called respirators, are used to artificially ventilate the lungs of patients who are unable to breathe naturally from the atmosphere. In almost 105 years of development, many mechanical ventilators with different designs have been manufactured (MacIntyre and Branson, 2009). Very early devices used bellows that were manually operated to inflate the lungs. Today s respirators employ an array of sophisticated components, such as microprocessors, fast-response servo valves, and precision transducers to mechanically ventilate the incapacitated patients. Large varieties of ventilators are now available for short-term treatment of acute respiratory dysfunction as well as long-term therapy for chronic respiratory conditions. 

Such syndicated issues have also been used by some of the larger Debt Agencies such as Spain and Italy, to distribute their long-term bonds more efficiently. The French Tresor has used this procedure for the launch of its inflation-linked bonds. 

Textbook efficient frontiers using, say, one-year period returns suffer from a mismatch between the term of the observation period and the term of a typical investment horizon (for which there may well be a linker of appropriate term). For long-term investors, it is not a particularly good way to examine inflation-linked bonds. 

Convexity differences between nominals and linkers create a systematic bias in break-even inflation, which is itself hard to quantify reliably (for instance, we have little objective current market-based information about prospective long-term real yield volatility). This makes the isolation of the risk premium even more difficult, if that s possible. The purpose of all of this is not to discourage the investigation of the risk premium, but rather to raise awareness of some important influences that need to be considered before you decide to begin your quest. 

What the formula tells us is that, theoretically, the variance of nominal yields could actually be lower than that for linker real yields if real yields and inflationary expectations were sufficiently highly negatively correlated, i.e., the beta could exceed one. We d place heavy emphasis on the word theoretically, and we mention it only because Wesley Phoa entertains the possibility in his book. He cites analysis suggesting that there is a long-term negative correlation between GDP and inflation, then (reasonably) argues that real yields are a function of real GDP, hence real yields and break-evens should be inversely related. 

Monetizing the deaths and other harms to be prevented as the intended health and safety benefits and arraying these numbers against the usually inflated costs of compliance claimed by industry, and discounting long-term benefits and costs to present-day values, constitutes a very arbitrary process. Cost-... 

In certain countries, such as the United Kingdom and New Zealand, the central bank has explicit inflation targets, and investors may believe that over the long term those targets will be met. If the monetary authorities have good track records, investors may further believe that inflation is not a significant issue. In such situations, the case for holding index-linked bonds is weakened. 

---