Expected Rate of Inflation
What is the Expected Rate of Inflation. Illustrate the term.
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Expected Rate of Inflation:
• When investors believe that inflation will be raising in the future, the yield curve will be upward sloping as long-term interest rates will enclose a bigger inflation premium than short-term interest rates.
• When investors believe inflation will be subsiding in the future, the current yield curve will be downward sloping.
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