Inflation Risk Premium: Evidence from the Tips Market
Preprint
- 15 February 2009
- preprint
- Published by Elsevier in SSRN Electronic Journal
Abstract
"Inflation-indexed securities would appear to be the most direct source of information about inflation expectations and real interest rates." (Bernanke, 2004). In this paper we study the term structure of real interest rates, expected inflation, and inflation risk premia using data on prices of Treasury Inflation Protected Securities (TIPS) over the period 2000-2007. The estimates of the 10-year inflation risk premium are between 11 and 22 basis points for 2000-2007 depending on the proxy used for the expected inflation. Furthermore, we find that the inflation risk premium is time varying and, specifically, negative in the first half (which might be due to either concerns of deflation or low liquidity of the TIPS market), but positive in the second half of the sample.Keywords
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