Working Paper

Hedging inflation and income risks

Abstract: This paper describes potential new markets for long-term inflation risk, and shows the relationship such markets would have to other potential new markets, markets for long-term claims on income aggregates. One inflation-risk market which would be very useful is a market for long-term (or perpetual) claims on a cash flow of constant real value each period, a cash flow measured each period by an index of consumer prices. Such markets need not take the form of indexed government or corporate debt; it would be more natural to create futures-like markets for cash flows tied to an index and paid by shorts in the market. ; The potential use for such long-term inflation risk markets is put into perspective here by comparing the long-term risks to the real value of nominal claims to the long-term risks to national products and dividend incomes, using data on 54 countries 1950-90.

Keywords: Inflation (Finance); Hedging (Finance); Financial markets;

Status: Published in Conference on Monetary Policy in a Low Inflation Regime

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Papers in Applied Economic Theory

Publication Date: 1994

Number: 94-10