Alternative inflation hedging strategies for ALM
AbstractGone are the days when inflation fears had receded under years of “Great Moderation” in macroeconomics. The US subprime financial crisis, the ensuing “Great Recession” and the sovereign debt scares that spread throughout much of the industrialized world brought about a new order characterized by higher inflation volatility, severe commodity price shocks and uncertainty over sovereign bond creditworthiness to name just a few. All of which tend to put in jeopardy both conventional inflation protected strategies and nominal unhedged ones: from reduced issues of linkers to negative long-term real rates, they call into question the viability of current strategies. This paper investigates those game changing events and their asset liability management consequences for retail and institutional investors. Three alternative ways to achieve real value protection are proposed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 43755.
Date of creation: 24 Jan 2013
Date of revision:
Inflation Hedging; Portfolio Allocation; Alternative Investment; Commodities; Real Rates; Core Inflation; Global Macro; Inflation Pass-through; Strategic Allocation; Portfolio Insurance; Great Recession;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- G2 - Financial Economics - - Financial Institutions and Services
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Boivin, Jean & Giannoni, Marc, 2006.
"Has Monetary Policy Become More Effective?,"
CEPR Discussion Papers
5463, C.E.P.R. Discussion Papers.
- Fuertes, Ana-Maria & Miffre, Joëlle & Rallis, Georgios, 2010. "Tactical allocation in commodity futures markets: Combining momentum and term structure signals," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2530-2548, October.
- Chen, Shiu-Sheng, 2009. "Oil price pass-through into inflation," Energy Economics, Elsevier, vol. 31(1), pages 126-133, January.
- Zvi Bodie, 1988. "Inflation, Index-Linked Bonds, and Asset Allocation," NBER Working Papers 2793, National Bureau of Economic Research, Inc.
- Courtland L. Washburn & Clark S. Binkley, 1993. "Do Forest Assets Hedge Inflation?," Land Economics, University of Wisconsin Press, vol. 69(3), pages 215-224.
- Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006.
"Zombie Lending and Depressed Restructuring in Japan,"
NBER Working Papers
12129, National Bureau of Economic Research, Inc.
- Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-77, December.
- Todd E. Clark & Stephen J. Terry, 2009.
"Time variation in the inflation passthrough of energy prices,"
Research Working Paper
RWP 09-06, Federal Reserve Bank of Kansas City.
- Todd E. Clark & Stephen J. Terry, 2010. "Time Variation in the Inflation Passthrough of Energy Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1419-1433, October.
- Zhang, Aihua & Korn, Ralf & Ewald, Christian-Oliver, 2007. "Optimal management and inflation protection for defined contribution pension plans," MPRA Paper 3300, University Library of Munich, Germany.
- Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads," IMF Working Papers 10/120, International Monetary Fund.
- Olivier J. Blanchard & Marianna Riggi, 2009.
"Why are the 2000s so different from the 1970s? A structural interpretation of changes in the macroeconomic effects of oil prices,"
NBER Working Papers
15467, National Bureau of Economic Research, Inc.
- Olivier J. Blanchard & Marianna Riggi, 2013. "WHY ARE THE 2000s SO DIFFERENT FROM THE 1970s? A STRUCTURAL INTERPRETATION OF CHANGES IN THE MACROECONOMIC EFFECTS OF OIL PRICES," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1032-1052, October.
- Stefania D'Amico & Don H Kim & Min Wei, 2008.
"Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices,"
BIS Working Papers
248, Bank for International Settlements.
- Stefania D'Amico & Don H. Kim & Min Wei, 2010. "Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices," Finance and Economics Discussion Series 2010-19, Board of Governors of the Federal Reserve System (U.S.).
- Stefania D'Amico & Don H. Kim & Min Wei, 2008. "Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices," Finance and Economics Discussion Series 2008-30, Board of Governors of the Federal Reserve System (U.S.).
- Fulli-Lemaire, Nicolas, 2012. "A Dynamic Inflation Hedging Trading Strategy Using a CPPI," MPRA Paper 42851, University Library of Munich, Germany, revised 13 Nov 2012.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Marie Brière & Ombretta Signori, 2011.
"Inflation hedging portfolios in different regimes,"
BIS Papers chapters,
in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 139-163
Bank for International Settlements.
- Daskalaki, Charoula & Skiadopoulos, George, 2011. "Should investors include commodities in their portfolios after all? New evidence," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2606-2626, October.
- Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942, September.
- Hayne E. Leland., 1979.
"Who Should Buy Portfolio Insurance?,"
Research Program in Finance Working Papers
95, University of California at Berkeley.
- Sue Wing, Ian, 2008. "Explaining the declining energy intensity of the U.S. economy," Resource and Energy Economics, Elsevier, vol. 30(1), pages 21-49, January.
- Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
- Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 09/90, International Monetary Fund.
- Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
- José De Gregorio & Oscar Landerretche & Christopher Neilson, 2007.
"Another Pass-Through Bites The Dust? Oil Prices And Inflation,"
wp238, University of Chile, Department of Economics.
- Jose de Gregorio & Oscar Landerretche & Christopher Neilson, 2007. "Another Pass-Through Bites the Dust? Oil Prices and Inflation," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
- Jose De Gregorio. & Oscar Landerretche. & Christopher Neilson., 2007. "Another Pass-Through Bites the Dust? Oil Prices and Inflation," Working Papers Central Bank of Chile 417, Central Bank of Chile.
- Baumeister, Christiane & Benati, Luca, 2010. "Unconventional monetary policy and the great recession - Estimating the impact of a compression in the yield spread at the zero lower bound," Working Paper Series 1258, European Central Bank.
- Paul van den Noord & Christophe André, 2007. "Why has Core Inflation Remained so Muted in the Face of the Oil Shock?," OECD Economics Department Working Papers 551, OECD Publishing.
- Dimitri Vayanos, 1998.
"Transaction costs and asset prices : a dynamic equilibrium model,"
LSE Research Online Documents on Economics
451, London School of Economics and Political Science, LSE Library.
- Vayanos, Dimitri, 1998. "Transaction Costs and Asset Prices: A Dynamic Equilibrium Model," Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 1-58.
- Hoevenaars, Roy P.M.M. & Molenaar, Roderick D.J. & Schotman, Peter C. & Steenkamp, Tom B.M., 2008. "Strategic asset allocation with liabilities: Beyond stocks and bonds," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2939-2970, September.
- Fulli-Lemaire, Nicolas & Palidda, Ernesto, 2012. "Swapping Headline for Core Inflation: An Asset Liability Management Approach," MPRA Paper 42853, University Library of Munich, Germany, revised 16 Nov 2012.
- Fulli-Lemaire, Nicolas, 2012. "Allocating Commodities in Inflation Hedging Portfolios: A Core Driven Global Macro Strategy," MPRA Paper 42852, University Library of Munich, Germany, revised 15 Oct 2012.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
- Dimitris Politis & Halbert White, 2004. "Automatic Block-Length Selection for the Dependent Bootstrap," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 53-70.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.