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This work aims to study the break-even inflation rates (BEIRs), a widely used market-based measure of expected inflation. The authors focus on Italian Government bonds, one of the most liquid debt markets in the euro area.

The authors set up an auto-regressive distributed lag model and regress the BEIR on a set of variables that proxy inflation, market risk aversion, protection against deflation, credit as well as liquidity risk to get some insights into the importance of these factors. Subsequently, to disentangle market participants’ inflation expectations from their associated risk premia, the authors estimate a term structure model for the joint pricing of the Italian Government’s nominal and real yield curves, considering also a credit and a liquidity pricing factor.

The results show that BEIRs could be a misleading measure of the expected inflation due to the importance of the inflation risk premium and the credit risk effect. According to the estimates, the decrease of market-based measures of inflation observed in the last part of the sample period seems to reflect a lowering of both inflation expectations and risk premia. Inflation premia co-move with a measure of the tail risk of the long-term inflation distribution, signalling that investors become more concerned with downside risks.

This study complements the existing literature primarily based on the USA and euro area data focusing on the Italian market. To this end, the authors modify and adapt a well-known term structure model developed for nominal and real curves.

The purpose of this paper is to forecast future inflation using a joint model of the nominal and real yield curves estimated with survey data. The model is arbitrage free and embodies incompleteness between the nominal and real bond markets.

The methodology is based on the affine class of term structure of interest rate. The model is estimated using the Kalman filter technique.

The authors show that the inclusion of survey data in the estimation procedure improves significantly the inflation forecasting. Moreover, the authors find that the monetary policy has significant effects on the inflation expectation and risk premium.

This paper is the first to estimate inflation using a joint model of nominal and real yield curves with Brazilian data. Moreover, the authors propose a simple arbitrage-free model that takes it account incompleteness between the nominal and real bond markets.

Indian monetary policy performed reasonably well in the past, while both strategy and operational framework were evolving on par with domestic financial and monetary markets. The purpose of this paper is to document how this good track record came to an abrupt stop in recent years as inflation rose sharply and, more worryingly, expected inflation followed suit.

This paper has analytical, empirical and policy dimensions. Given the recent surge in inflation in India, as well as in inflation expectations, a discussion of the role of monetary policy is needed. This is presented by resorting to survey evidence on expectations as well as to indirect evidence inferred from the market reactions to macroeconomic news.

The authors documented the unhinging of inflation expectations in India in the aftermath of the financial crisis. The evidence gathered leads to the conclusion that both the monetary policy strategy and framework of the Reserve Bank of India would benefit from further evolution in the direction of a precisely defined and overarching objective (price stability), instead of the present multiplicity of goals, and of a well‐defined operating target, enhancing the transparency, communication and signalling effect of policy moves. The authors suggest that embracing a flexible inflation targeting approach is a possible solution.

This is a highly topical issue that has attracted a great deal of attention in policy discussions, both in India and in the region. Very few papers combine the analytical and empirical considerations in this topic.

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

Gulf Cooperation Council (GCC) was set up in 1981 between Bahrain, Oman, Qatar, Saudi Arabia, United Arab Emirates and Kuwait for strengthening cooperation and economic development in the region. The GCC has made strides towards economic consolidation by forming a customs union and a common market. The long-term vision is to create an Economic and Monetary Union (EMU) with a single currency. Progress towards the EMU has been slow and the recent oil price plunge has led to concerns regarding sustainable growth of member countries due to their significant dependence on oil and lack of diversification. The purpose of this paper is to analyse the scope of an EMU in the GCC against the backdrop of current oil crisis and examine sustainability of such a union. The paper studies convergence criteria similar to the ones followed by the accession countries of the European EMU in the 1990s preceding the introduction of the single currency Euro.

The paper draws its practical approach from the experience of the European Monetary Union, though the original idea of the single currency in Optimum Currency Areas was conceived by Mundell (1961). The present paper analyses macroeconomic time-series variables (e.g. GDP, budget deficits, debt, growth rates, inflation rates, exchange rates) for GCC during the period 2005-2014. Data has been sourced from United Nations Conference on Trade and Development (UNCTAD), The World Bank and International Monetary Fund (IMF) databases to study the convergence criteria adopted by the EMU countries for the introduction of the Euro.

The paper concludes that GCC economies are similar in terms of their structural and economic fundamentals. Most elements of the convergence criteria that were followed by the accession countries in Europe are fulfilled by the GCC member states, particularly during 2011-2014. The GCC states look similar in terms of sustainable growth, price stability and exchange rate stability – three aspects of convergence met by the European Union states. However, heavy dependence on oil and lack of diversification from oil and hydrocarbon-related products in the gross domestic product (GDP) composition of GCC states pose severe risks to the potential union. Fiscal vulnerabilities of these economies to oil price shocks, such as the current oil price crisis, create concerns for such a union during oil price lows. Widely divergent fiscal deficit-to-GDP ratios and rising debt-to-GDP ratios during periods of low oil prices imply the lack of sound and unsustainable public finances for some of the GCC states. The divergence has stemmed from widely different break-even oil prices for government budgets within the GCC and also due to varying degrees of oil dependencies between the member states. The scope of a successful and more sustainable EMU can be further explored once the GCC economics have achieved adequate diversity from oil.

The study is useful to policy makers, central banks, businesses and researchers since it highlights the EMU as a feasible option for the GCC states. The sustainability of the EMU is contingent on diversification of these economies in the future from oil and oil-related products. The study can be utilized by policy makers as a strategy to further restructure GCC economies towards greater resilience and integration prior to accession to the GCC EMU.

Uses a life cycle costing case study to describe a technique useful to facilities managers in a decision about the acquisition of plant and equipment. The case study investigates floor coverings in commercial buildings. Provides detailed financial calculations and incorporates a number of innovations. First, all the costs and benefits are included; life cycle costing is commonly promoted on a cost‐only basis, but all building expenditure generates a value effect and this must be measured in any meaningful study. Second, the choice of discount rate may be relieved by either sensitivity analysis or by the calculation of a “break‐even” discount rate; discusses these. The results show that vinyl is nearly 50 per cent more expensive than carpet and that the replacement of vinyl in an existing building with carpet has a payback of about three years.

The “time value of money principle,” a building block of finance theory and practice, states that money today is worth more than money in the future. In this chapter, we argue that this principle is not consistent with intergenerational equity or sustainability.

We demonstrate that standard capital budgeting negatively affects sustainability by presenting two numerical examples and by discussing the role of financial markets in the time value of money and the discount rate. We then discuss Silvio Gesell’s (1862–1930) concept of Freigeld as a possible alternative framework for a “socially optimal” discount rate.

We show that the time value of money principle, as employed in standard capital budgeting techniques, tends to reject sustainable projects (that only break even in the long run) and accept unsustainable projects (that break even in the short term but entail significant long-term negative externalities). We find that fiat currencies offer interesting perspectives in the context of sustainability.

We show that money, interest rates and investment valuation techniques are not merely technical tools, but have important institutional, social, and political attributes. Taken together with current global demands for sustainability, this observation could justify a new research agenda seeking to redefine current capital budgeting techniques.

We stress that the “time value of money principle” should not be viewed as a technical tool, but rather, as a social and political construct. We argue that the principle needs to be reconsidered given the current global sustainability crisis.

The economics literature considers that externalities indicate a market failure, to which policy makers should respond by introducing optimal tax incentives and regulation. At the same time, the management studies literature has proposed a set of initiatives to align corporate governance with sustainability principles. This chapter examines an issue that concerns both these literatures, that is, the relationship between sustainability and the time value of money.