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Hedging inflation and income risks

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  • Robert J. Shiller

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.

Suggested Citation

  • Robert J. Shiller, 1994. "Hedging inflation and income risks," Working Papers in Applied Economic Theory 94-10, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfap:94-10
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