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Inflation-indexed bonds: how do they work?

Author

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  • Jeffrey M. Wrase

Abstract

In January 1997, the United States Treasury, after years of debate, issued its first inflation-indexed bonds. These securities differ from conventional bonds in that principal and interest payments are linked to a price index. Thus, the purchasing power of an investor's savings is protected from inflation. This article provides a simple description of the Treasury's new offering and discusses why indexed bonds may be useful to investors, the Treasury, and policymakers

Suggested Citation

  • Jeffrey M. Wrase, 1997. "Inflation-indexed bonds: how do they work?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 3-16.
  • Handle: RePEc:fip:fedpbr:y:1997:i:jul:p:3-16
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    File URL: http://www.phil.frb.org/research-and-data/publications/business-review/1997/july-august/brja97jw.pdf
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    Cited by:

    1. Lioui, Abraham & Poncet, Patrice, 2005. "General equilibrium pricing of CPI derivatives," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1265-1294, May.
    2. Simón Sosvilla-Rivero & Emma García, "undated". "Forecasting the Dollar/Euro Exchange Rate: Can International Parities Help?," Working Papers 2003-15, FEDEA.
    3. Thorsten Lehnert & Aleksandar Andonov & Florian Bardong, 2009. "TIPS, Inflation Expectations and the Financial Crisis," LSF Research Working Paper Series 09-09, Luxembourg School of Finance, University of Luxembourg.
    4. Schulz, Rainer, 2000. "Hedging the standard of living via cost of living index futures," SFB 373 Discussion Papers 2000,93, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    5. Juan Angel Garcia & Adrian van Rixtel, 2007. "Inflation-linked bonds from a central bank perspective," Occasional Papers 0705, Banco de España;Occasional Papers Homepage.
    6. Ricardo Selves & Marcin Stamirowski, 2011. "Including linkers in a sovereign bond portfolio: an HJM approach," BIS Papers chapters,in: Bank for International Settlements (ed.), Portfolio and risk management for central banks and sovereign wealth funds, volume 58, pages 111-137 Bank for International Settlements.
    7. Madureira, Leonardo, 2007. "The ex ante real rate and inflation premium under a habit consumption model," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 355-382, June.

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