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Tips from TIPS : the informational content of treasury inflation - protected security prices
D'Amico, Stefania (Author), Kim, Don H. (Author), Wei, Min (Author)

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Abstract
We examine the informational content of TIPS yields from the viewpoint of a general 3-factor no-arbitrage term structure model of inflation and interest rates. Our empirical results indicate that TIPS yields contained a "liquidity premium" that was until recently quite large (1%). Key features of this premium are difficult to account for in a rational pricing framework, suggesting that TIPS may not have been priced efficiently in its early years. Besides the liquidity premium, a time-varying inflation risk premium complicates the interpretation of the TIPS breakeven inflation rate (the difference between the nominal and TIPS yields). Nonetheless, high-frequency variation in the TIPS breakeven rates is similar to the variation in inflation expectations implied by the model, lending support to the view that TIPS breakeven inflation rates are a useful proxy for inflation expectations.

Language:English
Keywords:monetarna politika, zakladna menica, inflacija, tveganje, zavarovanje, donos, obrestna mera, cena, monetary policy, treasury bill, inflation, risk, insurance, yield, interest rate, price
Work type:Not categorized (r6)
Organization:EF - Faculty of Economics
Year:2008
Publisher:Bank for International Settlements
Number of pages:V, 42 str.
Place:Basel (Switzerland)
UDC:336
COBISS.SI-ID:18443750 Link is opened in a new window
Views:548
Downloads:151
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