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The rocky ride of break-even inflation rates

Author

Listed:
  • Marielle de Jong

    (Sinopia Asset Management)

  • Gilbert Cette

    (Banque de France and Université de la Méditerrannée)

Abstract

The correlation matrix between break-even inflation rate movements and real interest rate movements across several countries shows puzzling features. Correlation is significantly positive for nearly all cross-border pairs whereas it is nil, positive or negative unsystematically within countries. By means of a correlation matrix decomposition, we give an explanation for this puzzle.

Suggested Citation

  • Marielle de Jong & Gilbert Cette, 2008. "The rocky ride of break-even inflation rates," Economics Bulletin, AccessEcon, vol. 5(31), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-08e40007
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    File URL: http://www.accessecon.com/pubs/EB/2008/Volume5/EB-08E40007A.pdf
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    References listed on IDEAS

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    2. Ben R. Craig, 2003. "Why are TIIS yields so high? The case of the missing inflation-risk premium," Economic Commentary, Federal Reserve Bank of Cleveland, issue Mar.
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    4. Hunter, Delroy M. & Simon, David P., 2005. "Are TIPS the "real" deal?: A conditional assessment of their role in a nominal portfolio," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 347-368, February.
    5. William R. Emmons, 2000. "The information content of Treasury inflation-indexed securities," Review, Federal Reserve Bank of St. Louis, vol. 82(Nov), pages 25-38.
    6. Ian Christensen & Frédéric Dion & Christopher Reid, 2004. "Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate," Staff Working Papers 04-43, Bank of Canada.
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    Cited by:

    1. Gilbert Cette & Marielle de Jong, 2013. "Breakeven inflation rates and their puzzling correlation relationships," Applied Economics, Taylor & Francis Journals, vol. 45(18), pages 2579-2585, June.
    2. Gilbert Cette & Marielle de Jong, 2013. "Market-implied inflation and growth rates adversely affected by the Brent," Journal of Asset Management, Palgrave Macmillan, vol. 14(3), pages 133-139, June.
    3. Ascari, Guido & Florio, Anna & Gobbi, Alessandro, 2018. "High trend inflation and passive monetary detours," Economics Letters, Elsevier, vol. 172(C), pages 138-142.

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    More about this item

    Keywords

    Inflation-linked bonds;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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