ABSTRACT
Contracts requiring payment of dollars in the future for future delivery of goods and services are a regular part of economic life. The purchasing power represented by the dollar payments, however, depends upon the rate of inflation realized after the contracts are signed. This chapter argues that it would be helpful to the Federal Reserve System to have a measure of the public's inflation forecast. It proposes that the US Treasury issue indexed bonds to create a measure of the public's inflation forecast. A measure of the inflation expected by the public could be created by legislation requiring the Treasury to issue zero-coupon bonds with maturities of one year, two years, and so on out to twenty years. A zero-coupon bond is a promise to make a future one-time payment. Zero-coupon bonds sell at a discount and yield a return through capital appreciation. Ideally, for both nonindexed bond and indexed bond, income subject to taxation would be indexed for inflation.
