Inflation risk premium impacts economy, TIPS yield curve reveals.
The U.S. Treasury has been issuing index-linked debt for over ten years. Researchers have created a yield curve based on these securities to measure inflation compensation rates. By comparing this curve with the regular yield curve, they can calculate how much investors expect inflation to rise. The study shows that inflation compensation rates are influenced by inflation expectations, uncertainty, and an inflation risk premium that changes frequently. In the early years, inflation compensation was lower due to TIPS' lack of liquidity. The data is available online and can help economists analyze inflation trends.