The extreme valuation ratios for the US equities have led to concerns that the equity market may fall to reflect fundamental values again. This article studies the Vector Error Correction Model (VECM) representation of the price-dividends and price-earnings relationships. The analysis reveals no...

This paper investigates the impact of revisions in inflation expectations on the prices of UK inflation-indexed and conventional government bonds with a vector autoregressive (VAR) model. Downwards revisions of inflation expectations are associated with unexpected increases in the prices of...

This paper models the time-varying mean of the UK real and nominal short-term interest rate. Both rates mean revert to a time-varying central tendency in continuous-time interest rate models. Before and during British membership in the ERM, the mean of the real and nominal short rate have a...

A simple trading rule invests in long-term bonds or the risk-free asset based on publicly observed economic variables. The results indicate a predictable inflation risk premium for conventional bonds but no ex-ante risk compensation for indexed bonds. This suggests the government can achieve...

This paper studies the effects of the monetary policy regime shift to inflation targeting on the stochastic properties of the real interest rate in the U.K. The empirical analysis suggests a constant mean of the real interest rate that shifts with the monetary policy regime change to inflation...

This paper studies the effects of the monetary policy regime shift to inflation targeting on the stochastic properties of the real interest rate in the U.K. The empirical analysis suggests a constant mean of the real interest rate that shifts with the monetary policy regime change to inflation...

Indexed bonds provide protection against inflation if they are (i) insensitive to revisions of inflation expectations but (ii) adjust one-for-one to unexpected inflation. The sensitivity of British index-linked gilts to unexpected inflation is statistically significant and consistent with a unit...