 Breakeven inflation rates and their puzzling correlation relationshipsGilbert Cette and Marielle de Jong () Post-Print from HAL Abstract: It is generally assumed that the two Fisher components of the interest rate – the real interest and the inflation – evolve independently over time, considering that they are driven by unrelated economical events. However, the market pricing of those components deduced from newly-available bond data does not provide conclusive evidence. While studying the price behaviour of inflation-linked (real) bonds beside nominal bonds in the major fixed-income markets, we observe that the Real Bond Yields (RBY) and the yield differentials, the Breakeven Inflation Rates (BEIR), have the propensity to be positively correlated between each other across the various countries, yet are pushed into a negative correlation relationship due to market-related price distortions. As long as those distortions are local, the net result is near-zero correlation within countries; when they become global, as in the heat of the current crisis, the correlations turn negative worldwide. In this article insight is gained by taking an innovative worldwide study approach and thanks to revealing crisis period events. Keywords: breakeven inflation; Fisher hypothesis; inflation-linked bonds (search for similar items in EconPapers) Published in Applied Economics, 2013, 45 (18), pp.2579-2585. ⟨10.1080/00036846.2012.671924⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01500867 DOI: 10.1080/00036846.2012.671924 Access Statistics for this paper More papers in Post-Print from HAL |
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