How come any forecast affect coupon payments of inflation indexed bonds? Do these bonds trade like other normal bonds?
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Because investors expect unanticipated increase in GDP and volatility of GDP growth rate. Interest rate will increase. An increase in real GDP growth should lead to an increase in the real default-free rate of interest because more goods and services will be available in the future relative to today. The result is that investors’ willingness to substitute over time will fall, resulting in less saving and more borrowing, so that the real default-free interest rate increases,