Krugman: TIPs a Useful Indicator of Inflation
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November 10th, 2009 by AdvisorAnalyst
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Paul Krugman writes that TIPs (or Real Return Bonds in Canada) can be a useful indicator of the market’s inflation expectations, though not a perfect one, in critical response to an FT article:
Treasury inflation-protected securities — bonds whose payouts are indexed to consumer prices — are really useful for economic analysis: they give an objective, market-based measure of expected inflation. But you have to be a bit careful about using them to interpret recent events, because the same financial disruptions that wreaked havoc with many assets also did some funny stuff to TIPS.
Krugman’s second point, is that writers sometimes shape stories. Despite his criticism, inflation expectations based on his useful indicator are 1.98%.
Read the whole article here.
Read more from the author/contributor here.
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