TIPS Liquidity Premium and Quantitative Easing

Laura Coroneo

Discussion Papers from Department of Economics, University of York

Abstract: In the context of a state-space model for nominal and TIPS yields, we identify the liquidity premium in the TIPS market as the common component in TIPS yields unspanned by nominal yields. Using daily US yields, we find that the TIPS liquidity premium explains up to 22% of the variation in TIPS yields and that it sharply spiked during the recent financial crisis. A counterfactual exercise shows that the QE2 program had only limited effects on the liquidity premium in the TIPS market.

Keywords: TIPS; Liquidity Premium; Factor models; Quantitative Easing (search for similar items in EconPapers)
JEL-codes: C33 C53 E43 G12 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:15/23

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