The TIPS Yield Curve and Inflation Compensation

By R. Gürkaynak, Brian P. Sack, Jonathan H. Wright. 2007

426 citations recorded by the source corpus.

For over ten years, the U.S. Treasury has issued index-linked debt. Federal Reserve Board staff have fitted a yield curve to these indexed securities at the daily frequency from the start of 1999 to the present. This paper describes the methodology that is used and makes the estimates public. Comparison with the corresponding nominal yield curve allows measures of inflation compensation (or breakeven inflation rates) to be computed. We discuss the interpretation of inflation compensation and its relationship to inflation expectations and uncertainty, offering some empirical evidence that these measures are affected by an inflation risk premium that varies considerably at high frequency. In addition, we also find evidence that inflation compensation was held down in the early years of the sample by a premium associated with the illiquidity of TIPS at the time. We hope that the TIPS yield curve and inflation compensation data, which are posted here and will be updated periodically, will provide a useful tool to applied economists.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/b376f335260cf68564362fbd1bd02b37e0161089

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Citations in the corpus

Forward Guidance and Macroeconomic Outcomes since the Financial Crisis (2016, background): “…two-day changes in the ten-year ahead nominal instantaneous treasury yield, real TIPS yield, and implied inflation compensation (as measured by Gürkanynak, Sack, and Wright (2006, 2008) on the changes in the two-year zero-coupon nominal yield (also from Gürkanynak et al. (2006)), their…”
The Equilibrium Real Funds Rate: Past, Present, and Future (2016, positive): “The forward rates implied by yields as of December 20, 2014 were calculated as in Gürkaynak et al. (2010) using the spreadsheet available at http://www.”
High Frequency Identification of Monetary Non-Neutrality: The Information Effect (2018, neutral): “Gürkaynak, Sack, and Wright (2010) only report zero-coupon yields for these maturities from 2004 onward.”
Monetary Policy Surprises, Credit Costs, and Economic Activity † (2014, methodology): “Hanson and Stein (2012) and Nakamura and Steinsson (2013) use HFI to investigate the impact of monetary policy surprises on the real yield curve.”
Measuring the ''World'' Real Interest Rate (2014, positive): “Weighting bonds by the inverse of duration, as Gürkaynak et al. (2010) suggest, tends to improve estimator performance.”
The Formation of Expectations, Inflation, and the Phillips Curve (2018, background): “However, the breakeven inflation rate is a measure of inflation expectations confounded with the inflation risk premium and the difference in liquidity premiums between TIPS and nominal debt (e.g., Christensen et al. 2010; D’Amico et al. 2014; Gürkaynak et al. 2010), thus posing a dilemma for resear”