The Persistent Compression of the Breakeven Inflation Curve

Richard Crump, Nikolay Gospodinov and Desi Volker
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Desi Volker: https://www.newyorkfed.org/research/economists/volker

No 20210333, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Breakeven inflation, defined as the difference in the yield of a nominal Treasury security and a Treasury Inflation-Protected Security (TIPS) of the same maturity, is closely watched by market participants and policymakers alike. Breakeven inflation rates provide a signal about the expected path of inflation as perceived by market participants although they are also affected by risk and liquidity premia. In this post, we scrutinize the dynamics of breakeven inflation, highlighting some intriguing behavior which has persisted for a number of years and even through the pandemic. In particular, we document a substantial downward shift in the level of breakeven inflation as well as a marked flattening of the breakeven inflation curve.

Keywords: breakeven inflation; expected inflation; inflation risk premia (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2021-03-22
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
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