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Keywords:Inflation risk 

Journal Article
A new approach to gauging inflation expectations

This Economic Commentary explains a relatively new method of uncovering inflation expectations, real interest rates, and an inflation-risk premium. It provides estimates of expected inflation from one month to 30 years, an estimate of the inflation-risk premium, and a measure of real interest rates, particularly a short (one-month) rate, which is not readily available from the TIPS market. Calculations using the method suggest that longer-term inflation expectations remain near historic lows. Furthermore, the inflation-risk premium is also low, which in the model means that inflation is not ...
Economic Commentary , Issue Aug , Pages 4

The case for TIPS: an examination of the costs and benefits

Remarks at the Federal Reserve Bank of New York Inflation-Indexed Securities and Inflation Risk Management Conference.
Speech , Paper 11

The case for TIPS: an examination of the costs and benefits

Several studies have shown that, ex-post, the issuance of Treasury Inflation-Protected Securities (TIPS) has cost U.S. taxpayers money. We propose that evaluations of the TIPS program be more comprehensive and focus on the ex-ante costs of TIPS issuance versus nominal Treasury issuance and, especially when these costs are negligible, the more difficult-to-measure benefits of the program. Our study finds that the ex-ante costs of TIPS issuance versus nominal Treasury issuance are currently about equal and that TIPS provide meaningful benefits to investors and policymakers.
Staff Reports , Paper 353

Working Paper
An estimate of the inflation risk premium using a three-factor affine term structure model

This paper decomposes nominal Treasury yields into expected real rates, expected inflation rates, real risk premiums, and inflation risk premiums by separately calibrating a three-factor affine term structure model to the nominal Treasury and TIPS yield curves. Although this particular application seems to produce expected real short rates and inflation rates that are somewhat static, there are theoretical advantages to calibrating the model to nominal and real yields separately. Moreover, the estimates correlate positively with back-of-the-envelope measures of the inflation risk premium. ...
Finance and Economics Discussion Series , Paper 2006-42

The term structure of inflation expectations

We present estimates of the term structure of inflation expectations, derived from an affine model of real and nominal yield curves. The model features stochastic covariation of inflation with the real pricing kernel, enabling us to extract a time-varying inflation risk premium. We fit the model not only to yields, but also to the yields' variance-covariance matrix, thus increasing identification power. We find that model-implied inflation expectations can differ substantially from break-even inflation rates when market volatility is high. Our model's ability to be updated weekly makes it ...
Staff Reports , Paper 362

Real Interest Rates, Inflation, and Default

This paper argues that the comovement between inflation and economic activity is an important determinant of real interest rates over time and across countries. First, we show that for advanced economies, periods with more procyclical inflation are associated with lower real rates, but only when there is no risk of default on government debt. Second, we present a model of nominal sovereign debt with domestic risk-averse lenders. With procyclical inflation, nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. In the absence of default risk, procyclical ...
Staff Report , Paper 574

Journal Article
Quantitative easing and money growth: potential for higher inflation?

The enormous quantity of excess reserves can create an even greater expansion in the money supply.>
Economic Synopses

Explaining dissent on the FOMC vote for Operation Twist (with reference to Jan Mayen Island, Paul Volcker and Thor’s Hammer)

Remarks before the Dallas Assembly, Dallas, Texas, September 27, 2011 ; "Monetary policy cannot solve the problem of substandard economic performance unless it is complemented by fiscal policy and regulatory reform that encourages the private sector to put to work the affordable and abundant liquidity we are able to create as the nation?s monetary authority."
Speeches and Essays , Paper 95

Journal Article
Inflation may be the next dragon to slay

Although some think it's too soon to worry about high inflation, there are risks for that to happen in the medium term. Besides the obvious risks, a new bubble might be brewing in asset prices as investors search for higher returns, and the gap between actual output and potential output might be smaller than most think.
The Regional Economist , Issue Jan , Pages 4-9

Working Paper
Monetary policy, financial stability, and the distribution of risk

In an economy in which debt obligations are fixed in nominal terms, but there are otherwise no nominal rigidities, a monetary policy that targets inflation inefficiently concentrates risk, tending to increase the financial distress that accompanies adverse real shocks. Nominal-income targeting spreads risk more evenly across borrowers and lenders, reproducing the equilibrium that one would observe if there were perfect capital markets. Empirically, inflation surprises have no independent influence on measures of financial strain once one controls for shocks to nominal GDP.
Working Papers , Paper 1111


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