Abstract
The impact on rates of return of an expected change in the rate of inflation is examined in a general equilbrium framework. Explicit expressions are derived for the marginal relationships between the rate of inflation and nominal and real interest rates. One of the conclusions is that with taxation included, the nominal rate of interest will tend to increase more than corresponding to the pure Fisher effect, but less than required to keep consumers' after-tax real rate of return (and the consumption equilibrium) unchanged. Finally, some of the implications of the model for the pricing of indexed bonds are examined in a partial equilibrium framework.
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