Can TIPS help identify long-term inflation expectations?
Investors and policymakers have long hoped that Treasury Inflation Protected Securities (TIPS) would provide an accurate measure of long-term market inflation expectations. To make informed decisions and to ensure that inflation does not erode the purchasing power of their assets, investors need to assess the rate of inflation expected by other market participants. Having an accurate measure of market inflation expectations can also help policymakers assess their effectiveness in controlling long-term inflation, as well as their credibility among market participants.> Until recently, however, the only sources of information about long-term inflation expectations were surveys and the term structure of interest rates, neither of which were considered highly reliable. With the introduction of TIPS in 1997, it was hoped that a new measure of market inflation expectations—the difference in yields between conventional Treasuries and TIPS—would become available.> Shen and Corning examine the empirical evidence on the behavior of the yield difference and the liquidity of the TIPS market. They find that the yield difference has not provided a good measure of market inflation expectations because of the large and variable liquidity premium on TIPS. Still, the yield difference may become a better measure of market inflation expectations as liquidity conditions in the two kinds of Treasury markets move closer in the future.
Volume (Year): (2001)
Issue (Month): Q IV ()
|Contact details of provider:|| Postal: |
Phone: (816) 881-2254
Web page: http://www.kansascityfed.org
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
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.:
- David Barr & John Campbell, .
"Inflation, real interest rates and the bond market: a study of UK nominal and index-linked Government bond prices,"
CERF Discussion Paper Series
95-09, Economics and Finance Section, School of Social Sciences, Brunel University.
- David G. Barr & John Y. Campbell, 1996. "Inflation, Real Interest Rates, and the Bond Market: A Study of UK Nominal and Index-Linked Government Bond Prices," NBER Working Papers 5821, National Bureau of Economic Research, Inc.
- Barr, David & Campbell, John, 1997. "Inflation, Real Interest Rates, and the Bond Market: A Study of UK Nominal and Index-Linked Government Bond Prices," Scholarly Articles 3163261, Harvard University Department of Economics.
- Pu Shen, 1998. "How important is the inflation risk premium?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 35-47.
- Dominique Dupont & Brian P. Sack, 1999. "The Treasury securities market: overview and recent development," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 785-806.
- Mark Deacon & Andrew Derry, 1994. "Deriving Estimates of Inflation Expectations from the Prices of UK Government Bonds," Bank of England working papers 23, Bank of England.
When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2001:i:qiv:p:61-87:n:v.86no.4. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.