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economists expect the inflation rate to be 1.5 percent for the coming year and the following year, and then after year 2 inflation will settle
economists expect the inflation rate to be 1.5 percent for the coming year and the following year, and then after year 2 inflation will settle at a constant rate greater than 1.5 percent. the yield is the same on one-year bonds and two- year bonds; the yield on three year bonds is 0.5 percent greater than on one- year and two-year bonds. the real risk free rate is 2 percent for all bonds. if the bonds are risk-free, what rate of inflation is expected in year 3 and beyond?
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