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American Economic Journal: Macroeconomics: Vol. 2 No. 1 (January 2010)

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The TIPS Yield Curve and Inflation Compensation

Article 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

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)

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Authors

Gürkaynak, Refet S. (Bilkent U)
Sack, Brian (Federal Reserve Bank of New York)
Wright, Jonathan H. (Johns Hopkins U)

JEL Classifications

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

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