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TIPS Liquidity and the Outlook for Inflation

Author

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  • Martin M. Andreasen
  • Jens H. E. Christensen

Abstract

The prices of special securities known as TIPS can give some insight into how investors view the outlook for future inflation. New research uses a novel term structure model of nominal and real yields to estimate how much the liquidity premium embedded in the prices of these securities have varied over time. Accounting for variation in the premiums notably increases estimates of the inflation expectations underlying market-based measures of inflation compensation, particularly during the most recent financial crisis.

Suggested Citation

  • Martin M. Andreasen & Jens H. E. Christensen, 2016. "TIPS Liquidity and the Outlook for Inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00113
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    References listed on IDEAS

    as
    1. Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2010. "Inflation Expectations and Risk Premiums in an Arbitrage-Free Model of Nominal and Real Bond Yields," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 143-178, September.
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    Cited by:

    1. Mary C. Daly, 2019. "The Bumpy Road to 2 Percent: Managing Inflation in the Current Economy," Speech 193, Federal Reserve Bank of San Francisco.

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