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How Liquid Is the Inflation Swap Market?

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Abstract

Inflation swaps are used to transfer inflation risk and make inferences about the future course of inflation. Despite the importance of this market to inflation hedgers, inflation speculators, and policymakers, there is little evidence on its liquidity. Based on an analysis of new and detailed data in this post we show that the market appears reasonably liquid and transparent despite low trading activity, likely reflecting the high liquidity of related markets for inflation risk. In a previous post, we examined similar issues for the broader interest rate derivatives market.

Suggested Citation

  • Michael J. Fleming & John Sporn, 2013. "How Liquid Is the Inflation Swap Market?," Liberty Street Economics 20130401, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86864
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    File URL: https://libertystreeteconomics.newyorkfed.org/2013/04/how-liquid-is-the-inflation-swap-market.html
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    Keywords

    Derivative; Trading; Transparency;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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