The Impact of News on the Term-Structure of Breakeven Inflation

37 Pages Posted: 17 Feb 2009 Last revised: 5 Nov 2010

See all articles by Anthony P. Rodrigues

Anthony P. Rodrigues

Federal Reserve Bank of New York

Michelle Steinberg

Federal Reserve Banks - Federal Reserve Bank of New York

Laurel Madar

Federal Reserve Bank of New York

Date Written: September 8, 2009

Abstract

We present estimates of the impact of major macroeconomic announcements on two measures of U.S. forward breakeven inflation (the rate of realized forward inflation that leaves an investor equally well off whether he/she holds a nominal or indexed forward investment.) One set of measures is derived from discount curves fit to U.S. Treasury securities and the other set is calculated using inflation swaps. We find that forward breakevens across the maturity structure for both breakeven measures rise with surprises to core CPI, employment, and oil futures and that those responses are broadly similar across the breakeven measures. The reactions of inflation swap breakevens are less precisely estimated and are more variable than the reactions of treasury curve based breakevens. Stability tests find a break in the summer of 2008, which we interpret as separating the period before the worst market disruptions of the 2008 crisis from the crisis period itself.

Keywords: TIPS, inflation swaps, breakeven inflation

JEL Classification: G12,

Suggested Citation

Rodrigues, Anthony P. and Steinberg, Michelle and Madar, Laurel, The Impact of News on the Term-Structure of Breakeven Inflation (September 8, 2009). Available at SSRN: https://ssrn.com/abstract=1343687 or http://dx.doi.org/10.2139/ssrn.1343687

Anthony P. Rodrigues (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Michelle Steinberg

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Laurel Madar

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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