Tips from TIPS
the informational content of Treasury Inflation-Protected Security prices
Edición de la obra Tips from TIPS
| Autor | Stefania D'Amico |
|---|---|
| Editorial | Bank for International Settlements |
| Fecha de publicación | 2008 |
| Lugar | Basel, Switzerland |
| Idioma | inglés |
| Formato | Electronic resource |
| LCCN | 2008613032 |
| Serie | BIS working papers -- no. 248 |
| Número de Cutter | T595 |
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.