IDEAS home Printed from https://ideas.repec.org/p/fip/fedbpp/09-8.html
   My bibliography  Save this paper

TIPS scorecard: are TIPS accomplishing what they were supposed to accomplish?: can they be improved?

Author

Listed:
  • Michelle L. Barnes
  • Zvi Bodie
  • Robert K. Triest
  • J. Christina Wang

Abstract

In September 1997, the U.S. Treasury developed the TIPS market in order to achieve three important policy objectives: (1) to provide consumers with a class of assets that allows for hedging against real interest rate risk, (2) to provide holders of nominal contracts a means of hedging against inflation risk, and (3) to provide everyone with a reliable indicator of the term structure of expected inflation. This paper evaluates progress toward the achievement of these objectives and analyzes prospective ways to better meet these objectives in the future, by, for example, extending the maturity of TIPS and/or the use of inflation indexes suited to particular geographic regions or demographics. We conclude by arguing that while it is tempting to consider completing markets by introducing more TIPS-like securities indexed to inflation rates more tailored to particular demographics, our analysis suggests that TIPS indexed to CPI do, in fact, facilitate good synthetic hedges against unexpected changes in inflation for many different investors, since the various inflation measures are very highly correlated. We do, however, argue for extending the maturity of TIPS.

Suggested Citation

  • Michelle L. Barnes & Zvi Bodie & Robert K. Triest & J. Christina Wang, 2009. "TIPS scorecard: are TIPS accomplishing what they were supposed to accomplish?: can they be improved?," Public Policy Discussion Paper 09-8, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbpp:09-8
    as

    Download full text from publisher

    File URL: http://www.bostonfed.org/economic/ppdp/2009/ppdp0908.htm
    Download Restriction: no
    File URL: http://www.bostonfed.org/economic/ppdp/2009/ppdp0908.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert J. Gordon, 2006. "The Boskin Commission Report: A Retrospective One Decade Later," International Productivity Monitor, Centre for the Study of Living Standards, vol. 12, pages 7-22, Spring.
    2. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    3. Jack E. Triplett, 2006. "The Boskin Commission Report After a Decade," International Productivity Monitor, Centre for the Study of Living Standards, vol. 12, pages 24-60, Spring.
    4. William Dudley & Michelle Steinberg Ezer & Jennifer E. Roush, 2009. "The case for TIPS: an examination of the costs and benefits," Economic Policy Review, Federal Reserve Bank of New York, vol. 15(Jul), pages 1-17.
    5. Refet S. Gürkaynak & Brian Sack & Jonathan H. Wright, 2010. "The TIPS Yield Curve and Inflation Compensation," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 70-92, January.
    6. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
    7. David Goldreich & Bernd Hanke & Purnendu Nath, 2005. "The Price of Future Liquidity: Time-Varying Liquidity in the U.S. Treasury Market," Review of Finance, European Finance Association, vol. 9(1), pages 1-32.
    8. Dean Croushore, 1997. "The Livingston Survey: still useful after all these years," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 15-27.
    9. Ralph C. Kimball & Richard W. Kopcke, 1999. "Inflation-indexed bonds: the dog that didn't bark," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-24.
    10. W. Erwin Diewert, 1998. "Index Number Issues in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 47-58, Winter.
    11. Clinton P. McCully & Brian C. Moyer & Kenneth J. Stewart, 2007. "A Reconciliation between the Consumer Price Index and the Personal Consumption Expenditures Price Index," BEA Papers 0079, Bureau of Economic Analysis.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matthias Fleckenstein & Francis A. Longstaff & Hanno Lustig, 2013. "Deflation Risk," NBER Working Papers 19238, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lieu, Pang-Tien & Liang, Jung-Hui & Chen, Jui-Hui, 2008. "Consumer preferences and cost of living in Taiwan," Journal of Asian Economics, Elsevier, vol. 19(3), pages 224-235, June.
    2. Clemens Struck & Adnan Velic, 2017. "To Augment Or Not To Augment? A Conjecture On Asymmetric Technical Change," Trinity Economics Papers tep0117, Trinity College Dublin, Department of Economics.
    3. Herzberg, Julika & Knetsch, Thomas A. & Schwind, Patrick & Weinand, Sebastian, 2021. "Quantifying bias and inaccuracy of upper-level aggregation in HICPs for Germany and the euro area," Discussion Papers 06/2021, Deutsche Bundesbank.
    4. Svedberg, Peter & Tilton, John E., 2006. "The real, real price of nonrenewable resources: copper 1870-2000," World Development, Elsevier, vol. 34(3), pages 501-519, March.
    5. Cartea, Álvaro & Saúl, Jonatan & Toro, Juan, 2012. "Optimal portfolio choice in real terms: Measuring the benefits of TIPS," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 721-740.
    6. Robert J. Gordon, 2006. "The Boskin Commission Report: A Retrospective One Decade Later," International Productivity Monitor, Centre for the Study of Living Standards, vol. 12, pages 7-22, Spring.
    7. Christensen, Jens H.E. & Gillan, James M., 2022. "Does quantitative easing affect market liquidity?," Journal of Banking & Finance, Elsevier, vol. 134(C).
    8. Tsuyoshi Sasaki, 2019. "Welfare evaluations and price indices with path dependency problems," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 127-159, January.
    9. Martin M Andreasen & Jens H E Christensen & Simon Riddell, 2021. "The TIPS Liquidity Premium [Decomposing real and nominal yield curves]," Review of Finance, European Finance Association, vol. 25(6), pages 1639-1675.
    10. Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "On quality bias and inflation targets," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 393-400.
    11. John Y. Campbell & Robert J. Shiller & Luis M. Viceira, 2009. "Understanding Inflation-Indexed Bond Markets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 79-138.
    12. Libor Dusek & Lubomir Lizal (ed.), 2011. "CERGE-EI Tackles Transition," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b05, May.
    13. Patrick Bajari & Zhihao Cen & Victor Chernozhukov & Manoj Manukonda & Jin Wang & Ramon Huerta & Junbo Li & Ling Leng & George Monokroussos & Suhas Vijaykunar & Shan Wan, 2023. "Hedonic prices and quality adjusted price indices powered by AI," CeMMAP working papers 08/23, Institute for Fiscal Studies.
    14. Bokor, László, 2007. "Optimality criteria of hybrid inflation-price level targeting," MPRA Paper 10278, University Library of Munich, Germany, revised Jul 2008.
    15. Timothy K.M. Beatty & Erling Røed Larsen & Dag Einar Sommervoll, 2005. "Measuring the Price of Housing Consumption for Owners in the CPI," Discussion Papers 427, Statistics Norway, Research Department.
    16. Hanousek, Jan & Filer, Randall K, 2004. "Consumers' Opinion of Inflation Bias Due to Quality Improvements," Economic Development and Cultural Change, University of Chicago Press, vol. 53(1), pages 235-254, October.
    17. Caitlin Blair, 2013. "Constructing a PCE-Weighted Consumer Price Index," NBER Working Papers 19582, National Bureau of Economic Research, Inc.
    18. Christian Broda & Ephraim Leibtag & David E. Weinstein, 2009. "The Role of Prices in Measuring the Poor's Living Standards," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 77-97, Spring.
    19. Caitlin Blair, 2014. "Constructing a PCE-Weighted Consumer Price Index," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 53-74, National Bureau of Economic Research, Inc.
    20. Ingvild Almås & Timothy K.M. Beatty & Thomas F. Crossley, 2018. "Lost in Translation: What do Engel Curves Tell us about the Cost of Living?," CESifo Working Paper Series 6886, CESifo.

    More about this item

    Keywords

    Treasury bonds; Treasury notes; Inflation-indexed bonds;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedbpp:09-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Spozio (email available below). General contact details of provider: https://edirc.repec.org/data/frbbous.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.