42 Pages Posted: 15 Jan 2009
Date Written: October 2008
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.
Keywords: Yield curve, treasury market, inflation compensation, risk premia
JEL Classification: G28
Suggested Citation: Suggested Citation
Gurkaynak, Refet S. and Sack, Brian P. and Wright, Jonathan H., The TIPS Yield Curve and Inflation Compensation (October 2008). FEDS Working Paper No. 2008-05. Available at SSRN: https://ssrn.com/abstract=1327082 or http://dx.doi.org/10.2139/ssrn.1327082