Inflation Risk Premium: Evidence from the Tips Market

Posted: 18 Feb 2009

See all articles by Olesya V. Grishchenko

Olesya V. Grishchenko

Board of Governors of the Federal Reserve System

Jing-Zhi Huang

Pennsylvania State University - University Park - Department of Finance

Multiple version iconThere are 4 versions of this paper

Date Written: February 15, 2009

Abstract

"Inflation-indexed securities would appear to be the most direct source of information about inflation expectations and real interest rates." (Bernanke, 2004). In this paper we study the term structure of real interest rates, expected inflation, and inflation risk premia using data on prices of Treasury Inflation Protected Securities (TIPS) over the period 2000-2007. The estimates of the 10-year inflation risk premium are between 11 and 22 basis points for 2000-2007 depending on the proxy used for the expected inflation. Furthermore, we find that the inflation risk premium is time varying and, specifically, negative in the first half (which might be due to either concerns of deflation or low liquidity of the TIPS market), but positive in the second half of the sample.

Keywords: TIPS market, inflation risk premium, expected inflation

JEL Classification: E31, E43, E44

Suggested Citation

Grishchenko, Olesya V. and Huang, Jing-Zhi Jay, Inflation Risk Premium: Evidence from the Tips Market (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1344131 or http://dx.doi.org/10.2139/ssrn.1344131

Olesya V. Grishchenko (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2981 (Phone)

Jing-Zhi Jay Huang

Pennsylvania State University - University Park - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://www.personal.psu.edu/jxh56

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