WHAT DOES THE TERM STRUCTURE TELL US ABOUT FUTURE INFLATION

This empirical analysis indicates that for maturities of six months or less, the term structure of nominal interest rates provides almost no information about the future path of inflation but does provide information about the term structure of real interest rates. However, as maturities lengthen to nine and twelve months, the nominal term structure begins to contain information about future inflation, but ceases to provide information about the real term structure. These results are explained by differences in the relative variability of expected future inflation changes and real term structure slopes at different points in the term structure. © 1990.