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Inflation Uncertainty and Expected Returns on Treasury Bills

Eugene F. Fama
Journal of Political Economy
Vol. 84, No. 3 (Jun., 1976), pp. 427-448
Stable URL: http://www.jstor.org/stable/1829863
Page Count: 22
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Inflation Uncertainty and Expected Returns on Treasury Bills
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Abstract

At time t-1 there is uncertainty about the rate of inflation that will be observed between t-1 and t, and there is uncertainty about the expected values of future rates of inflation that will be assessed at t. The attempts to identify variation through time in expected real returns on Treasury bills as a function of the uncertainty of the inflation rate are unsuccessful. It is argued, however, that uncertainty of the inflation rate doesn't change much during the sample period (1953-71). Variation through time in uncertainty about future assessments of expected rates of inflation seems somewhat more systematic, and perhaps as a consequence relationships between this source of inflation uncertainty and expected real returns and premiums are found.

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