CXO

Price Discovery On Traded Inflation Expectations: Does The Financial Crisis Matter?

Download Now Date Added: Sep 2009
Format: PDF

The authors analyze contributions of different markets to price discovery on traded inflation expectations and how it changed during the financial crisis. The quicker information is processed on one market and the less one market is disrupted by the financial crisis the more valuable is its information for central banks and market participants. They use a new high frequency data set on inflation-indexed and nominal government bonds as well as inflation swaps to calculate information shares of break-even inflation rates in the euro area and the US. For maturities up to 5 years new information come from both the swap and the bond markets. For longer maturities the swap market provides less and less information in the euro area.