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Treasury inflation-indexed debt: a review of the U.S. experience


  • Brian P. Sack
  • Robert Elsasser


This paper reviews the U.S. experience with inflation-indexed debt. To date, Treasury inflation-indexed securities have not been highly valued by investors, with the spread between the yields on nominal and inflation-indexed securities falling consistently below most measures of long-run inflation expectations. A number of factors might have contributed to the low relative valuation of TIIS, including the difficulty for investors of adjusting to a new asset class, the concentration of participation in the market, the lower liquidity of TIIS relative to nominal Treasury securities, and the divergent trends in the supply of nominal and inflation-indexed Treasury debt. As a result, inflation-indexed debt has not yet lived up to one of its main purposes--to reduce financing costs to the Treasury. However, there are signs that the TIIS market is still evolving, which could affect the valuation of TIIS going forward.

Suggested Citation

  • Brian P. Sack & Robert Elsasser, 2002. "Treasury inflation-indexed debt: a review of the U.S. experience," Finance and Economics Discussion Series 2002-32, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2002-32

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    References listed on IDEAS

    1. J. Huston McCulloch & Levin A. Kochen, 1998. "The Inflation Premium Implicit in the US Real and Nominal Term Structures of Interest Rates," Working Papers 98-12, Ohio State University, Department of Economics.
    2. Brian P. Sack, 2000. "Deriving inflation expectations from nominal and inflation-indexed Treasury yields," Finance and Economics Discussion Series 2000-33, Board of Governors of the Federal Reserve System (U.S.).
    3. Fischer, Stanley, 1975. "The Demand for Index Bonds," Journal of Political Economy, University of Chicago Press, vol. 83(3), pages 509-534, June.
    4. Robert Barro, 2003. "Optimal Management of Indexed and Nominal Debt," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 1-15, May.
    5. J. Huston McCulloch, 2001. "The Inflation Premium implicit in the US Real and Nominal," Computing in Economics and Finance 2001 210, Society for Computational Economics.
    6. 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.
    7. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-1230, December.
    8. John Y. Campbell & Robert J. Shiller, 1996. "A Scorecard for Indexed Government Data," Harvard Institute of Economic Research Working Papers 1758, Harvard - Institute of Economic Research.
    9. John Y. Campbell & Robert J. Shiller, 1996. "A Scorecard for Indexed Government Debt," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 155-208 National Bureau of Economic Research, Inc.
    10. Richard W. Kopcke & Ralph C. Kimball, 1999. "Inflation-indexed bonds: the dog that didn't bark," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-24.
    11. David L. Reifschneider & Robert J. Tetlow & John Williams, 1999. "Aggregate disturbances, monetary policy, and the macroeconomy: the FRB/US perspective," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-19.
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    Cited by:

    1. Herrera, Santiago, 2005. "Policy mix, public debt management, and fiscal rules - lessons from the 2002 Brazilian crisis," Policy Research Working Paper Series 3512, The World Bank.


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