Overview
This paper derives a measure of inflation compensation from the yields of a Treasury inflation-indexed security and a portfolio of STRIPS that has similar liquidity and duration as the indexed security. This measure can be used as a proxy for inflation expectations if the inflation risk premium is small. The calculated measure suggests that the rate of inflation expected over the next ten years fell from just under 3% in mid-1997 to just under 1 3/4% by early 1999, before rising back to about 2 1/2% by the beginning of 2000. This variation is more extensive than would have been expected from a simple model of inflation dynamics or from a survey measure of long-run inflation expectations.
- | Author: Brian Sack
- | Publisher: Bibliogov
- | Publication Date: Feb 06, 2013
- | Number of Pages: 28 pages
- | Binding: Paperback or Softback
- | ISBN-10: 1288716990
- | ISBN-13: 9781288716999
