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  3. American Economic Journal: Macroeconomics
  4. January 2010
  5. The TIPS Yield Curve and Inflation Compensation

The TIPS Yield Curve and Inflation Compensation

  • Refet S. Gürkaynak
  • Brian Sack
  • Jonathan H. Wright
American Economic Journal: Macroeconomics
vol. 2, no. 1, January 2010
(pp. 70-92)
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Abstract

For over ten years, the Treasury has issued index-linked debt. This paper describes the methodology for fitting a smoothed yield curve to these securities that is used at the Federal Reserve Board every day, and makes the estimates public. Comparison with the corresponding nominal yield curve allows measures of inflation compensation to be computed. We discuss the interpretation of inflation compensation, and provide evidence that it is not a pure measure of inflation expectations being distorted by inflation risk premium and liquidity premium components. We attempt to estimate the TIPS liquidity premium and to extract underlying inflation expectations. (JEL E31, E43, H63)

Citation

Gürkaynak, Refet S., Brian Sack, and Jonathan H. Wright. 2010. "The TIPS Yield Curve and Inflation Compensation." American Economic Journal: Macroeconomics, 2 (1): 70-92. DOI: 10.1257/mac.2.1.70

Additional Materials

JEL Classification

  • E31 Price Level; Inflation; Deflation
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • H63 National Debt; Debt Management; Sovereign Debt
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