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Tips Scorecard: Are Tips Accomplishing What They Were Supposed to Accomplish? Can They Be Improved?


Michelle L. Barnes


Federal Reserve Bank of Boston

Zvi Bodie


Boston University - Department of Finance & Economics

Robert K. Triest


Federal Reserve Bank of Boston - Research Department; Boston College

J. Christina Wang


Federal Reserve Bank of Boston

September 1, 2009

FRB of Boston Public Policy Discussion Paper No. 09-8

Abstract:     
In September 1997, the U.S. Treasury developed the TIPS market in order to achieve three important policy objectives: (1) to provide consumers with a class of assets that allows for hedging against real interest rate risk, (2) to provide holders of nominal contracts a means of hedging against inflation risk, and (3) to provide everyone with a reliable indicator of the term structure of expected inflation. This paper evaluates progress toward the achievement of these objectives and analyzes prospective ways to better meet these objectives in the future, by, for example, extending the maturity of TIPS and/or the use of inflation indexes suited to particular geographic regions or demographics. We conclude by arguing that while it is tempting to consider completing markets by introducing more TIPS - like securities indexed to inflation rates more tailored to particular demographics, our analysis suggests that TIPS indexed to CPI do, in fact, facilitate good synthetic hedges against unexpected changes in inflation for many different investors, since the various inflation measures are very highly correlated. We do, however, argue for extending the maturity of TIPS.

Number of Pages in PDF File: 55

JEL Classification: G10, G11, G18

working papers series


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Date posted: December 8, 2009 ; Last revised: March 9, 2010

Suggested Citation

Barnes, Michelle L. and Bodie, Zvi and Triest, Robert K. and Wang, J. Christina, Tips Scorecard: Are Tips Accomplishing What They Were Supposed to Accomplish? Can They Be Improved? (September 1, 2009). FRB of Boston Public Policy Discussion Paper No. 09-8. Available at SSRN: http://ssrn.com/abstract=1520569 or http://dx.doi.org/10.2139/ssrn.1520569

Contact Information

Michelle L. Barnes (Contact Author)
Federal Reserve Bank of Boston ( email )
600 Atlantic Avenue
Boston, MA 02210
United States
Zvi Bodie
Boston University - Department of Finance & Economics ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-4160 (Phone)
617-353 6667 (Fax)
HOME PAGE: http://smgnet.bu.edu/mgmt/profiles/BodieZvi.html
Robert Triest
Federal Reserve Bank of Boston - Research Department ( email )
600 Atlantic Avenue
Boston, MA 02210
United States
617-973-3431 (Phone)
617-973-3957 (Fax)
Boston College ( email )
Chestnut Hill, MA 02167
United States
J. Christina Wang
Federal Reserve Bank of Boston ( email )
600 Atlantic Avenue
Boston, MA 02210
United States
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