Questions tagged [inflation]

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Data on historical, cross-country REAL yield curves (i.e. inflation-linked bonds)

I asked here about data on a data source for historical yield curves for many countries. Many central banks (linked there, in Helin's answer) publish estimates for their nominal yield curves. But most ...
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Quantlib : Valuation of inflation swaps of EUR-RPI using quantlib python?

Below is the sample code to compute the inflation swaps. I have referred the Quantlib cookbook to get the flavor of Inflation swaps. But I feel that the term structure and final NPV is not accurate ...
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Calculation of log returns of a short position with two instruments

The usual method for calculating short log returns would be ln((selling price - fees) / buying price). But how does this apply to a trade with two instruments, e.g., a bond breakeven trade? E.g., the ...
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Up-to-date breakeven inflation term structure for US and Eurozone

I am looking for openly accessible, up-to-date data for the term structure of the breakeven inflation rates in the US and the eurozone. All I can find are static charts that illustrate past news ...
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1 answer
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How does FED quantify inflation expectation?

As I understand the FED considers the employment and inflation expectation when defining the monetary policy. I wonder what is the quantitative indicator or traded instrument FED uses to derive this ...
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Help with unexpected inflation beta?

I read an article here about unexpected inflation betas. The concept seems simple: regress nominal returns of an asset onto “unexpected inflation.” Then for every 1% rise in unexpected inflation, we ...
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1 answer
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Long Breakeven inflation

I want to go long bei by going long individual 10 year tips and short individual 10 year treasuries. How do I calculate and match the duration?
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Should I train (and apply) a commodity forecasting model using nominal or real historical (futures) prices?

I am forecasting hourly power prices by applying Gradient Boosting to, among other variables, average monthly gas prices. The algorithm is currently trained on historical nominal monthly average gas ...
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What details must be considered when assessing an asset’s inflation beta?

The inflation beta of an asset is described as: $$ r_{i,t}-r_f = \alpha_i + \beta_\pi^i \epsilon_{\pi, t} + u_{i,t} $$ For shorthand, I will use “return” to mean excess return. In academic literature ...
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1 answer
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Inflation β = 1 meaning a “perfect inflation hedge?”

I read somewhere (Ang, Brière, Signori: Inflation and Individual Equities, 2012) that in a given period if the inflation rate rises by 1% point (say from 1% to 2%), and the return of Asset A rises ...
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1 answer
2k views

Difference between 5Y breakeven inflation and 5Y5Y inflation forward?

I cannot figure out the difference between the two data series found here: https://fred.stlouisfed.org/series/T5YIE/ https://fred.stlouisfed.org/series/T5YIFR/ The 5Y breakeven inflation, to my ...
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Why does the rate of inflation vary over time?

Interest rates have varied significantly over the last 50+ years (source: https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart ). Is it possible to comprehensively and succinctly ...
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Breakeven Inflation Rate vs Actual Inflation Rate Study

I am relatively new to the realm of TIPS and inflation rate and am working on a study. I wish to investigate the correlation between the breakeven inflation rate for (5Y, 10Y, 20Y) TIPS and actual ...
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Relation between inflation rate and the exchange rate of the currency

I have been studying the relation between exchange rates and the inflation of the currencies, but I am far from understanding the most relevant factor in driving FX market players from pricing ...
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Is the price of the following inflation derivative observed/traded?

Let $M_{t\to t+2}^{\\\$}$ be the pricing kernel (SDF) from period $t$ to $t+2$. Let inflation over period $t$ to $t+1$ be denoted by $\Pi_{t \to t+1}$. Is it possible to observe the following quantity ...
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ARMAX model with rolling window for predicting inflation

First of all, similar questions like mine are answered on this forum but I never quite saw an answer to this specific question. I'm trying to predict inflation by using an AR model with exogenous ...
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Why does holding a linker give you positive carry when inflation indices move up?

My book says: "By construction, the cash flows of inflation linked bonds are indexed, using daily indexation factors that are applied to the real price of a bond to arrive to the dirty price of ...
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1 answer
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House price inflation modelling

I have a data set of house prices and their corresponding features (rooms, meter squared, etc). An additional feature is the sold date of the house. The aim is to create a model that can estimate the ...
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3 votes
2 answers
709 views

What drives the difference between M1 & M2 money supply (in the US)?

From what I understand the only entity that controls M1 in US is the Federal Reserve. Is it true that M2-M1( M2 minus M1; the part of M2 that is NOT in M1 like timed deposits) is controlled by the ...
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1 answer
261 views

IRR with Inflation Rate

I have cash inflows and cash outflows for a 7 year period and my MIRR and inflation rate. That's all the information I have. How do I calculation the IRR taking the inflation rate into account in ...
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1 answer
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Do all inflation swaps reference the non-seasonally-adjusted index values?

Inflation CPI values (typically published monthly except Australia) are typically published in both SA (sseaonally adjusted) and NSA (non-seasonally adjusted) variants. Inflation swaps reference the ...
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What are the differences between the two equations relating inflation, real interest rates and nominal interest rates?

My lecturer showed two equations to describe the relationship between inflation, nominal and real interest rates, denoted as $I, RN, RR$, respectively. Then we have the following equations $$ 1+ RR_{1-...
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2 votes
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Inflation Option Modelling Approaches

I am trying to come up with a simplistic inflation option model to get a sense of the materiality of some inflation-indexed contracts containing inflation guarantees. I have a stochastic nominal IR ...
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2 votes
1 answer
538 views

Which is the "correct" 5Y5Y Inflation Expectation on Bloomberg, and what are the differences?

When the market talks about 5Y5Y expectation, is it referring to FWISUS55 Index, or G0169 5Y5Y BLC2 Curncy on Bloomberg? I ...
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Where to Get the Yield of One Year Constant Duration TIPS ( inflation protected bonds)

Do you know where can I get the Yield of One Year Constant Duration TIPS ( inflation protected bonds). I found the yield of 5 year, but never could get the data for one year. Many thanks!
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How to normalise companies relative to each other? Remove the effect of macro-economy?

I want to focus on companies-performance only and as much as possible remove the effect of macro-economy. Interest rate changes, crisis, inflation etc. There are 2 goals: Simplification of analysis ...
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0 votes
1 answer
261 views

What is the most convincing method/formula for carry and rolldown (in nominal terms) of inflation protected bonds

It is interesting that there is no thorough discussion and clear derivation on this per my search. I know TIPS are complex (compared to nominal bonds). The naive use of simple spot/forward yield ...
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2 votes
2 answers
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Calculating Implied Volatility from a put option

I am trying to find the Black-Scholes implied vol from a put option. I know how to do this in the case of a regular put option on an underlier $S(t)$ where $$ p(t, K) = e^{-r(T-t)}\mathbb{E}_Q\Big[ (K ...
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Looking for datasets with daily inflation rate for as many countries as possible

Here's an example of the kind of thing I'm looking for https://fred.stlouisfed.org/series/T10YIE I'm also happy to perform transformation on other data to get an estimated/approximated daily value if ...
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1 vote
1 answer
148 views

How to evaluate embedded floor option in inflation linked bonds if interbank inflation floor instruments cannot be used or do not exist

Suppose we consider simple case that only par is protected against base price index, so it is with zero coupon floor feature. How do we value this option given that there is no inflation floor ...
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3 votes
1 answer
2k views

Inflation swaps rate vs. Break-even rate

Can someone explain me the difference between zero coupon inflation swap rate and breakeven rate? For example, currently, US 10y zero coupon inflation swap rate is about 1.4%, while US breakeven 10y ...
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How could we use 5 year Tips minus 2 Year Tips to get insight of Inflation Expection?

I read a article where the author used the difference the between yields of 5 year Tips and 2 year Tips as a proxy of the inflation expectation. Could anyone explain me what is the logic behind this ...
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1 vote
1 answer
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How to deflate USD inflation?

On the picture below prices of SP500 and Gold (rescaled) for last 90 years. There are at least 3 types of distortions caused by inflation: Slow upward trend. Sudden jumps caused by radical changes ...
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1 vote
1 answer
124 views

Inflation Indexed Caplet/Floorlet

Can someone explain what is it with $\psi_{i}$ (year fraction in $[T_{i-1},T_{i}]$). The formula in Mercurio (2006) as is follows: $N\psi_{i}P_{n}(t,T_{i})\mathbb{E}_{n}^{T_{i}}\left[\left(\omega\...
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2 answers
504 views

Hull-White Calibration /Hypothetical Cap Pricing

I have a question regarding calibrating Hull-White (Extended Vasicek) Model to bond data. As you know, and stated in Mercurio (2005), zero coupon bond price in the Hull and White (1994); $P(t,T)=A(t,...
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3 votes
0 answers
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Looking for a Paper: RBS Guide to Inflation-Linked Products

I wonder if any of you have an access to "The Royal Bank of Scotland (2003) Guide to Inflation-Linked Products. Risk." paper. It was in the bibliography of Mercurio's "Pricing Inflation Indexed ...
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1 vote
2 answers
422 views

Why Consumer Price Index is linear, when it should be exponential? And what to use instead?

Consumer Price Index looks like a very nice straight line, perfectly approximated with linear function (considering it only after the 1972). $$cpi(years) = start + ...
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1 vote
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Inflation TIPS - What does it mean - 10Y breakeven shorts with 0.8 beta?

"10Y breakeven shorts with 0.8 beta" "10Y breakeven shorts with long 80% nominal to eliminate long duration bias" Are the above two the same, what do they mean?
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1 vote
1 answer
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In a cleared inflation swap agreement, what determines how much "collateral" a party needs to deposit into the third party escrow account?

Does realized inflation or expected future inflation determine how much money needs to be placed into the escrow account each day?
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What happens to both sides of an inflation swap agreement if there is deflation?

If there is deflation does the Inflation receiver not only pay the fixed leg but also receives a reduced CPI? I.e. does he lose twice?
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3 answers
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Can an individual hedge inflation that exceeds CPI-U?

Is there a way for an individual (i.e., excluding institutional tools and using only consumer products) in the U.S. to hedge inflation over the long term greater than that measured by CPI-U? ...
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"BTP ITALIA" Inflation Linker Pricing

I have some issue with pricing of Italian linker bonds (http://www.dt.tesoro.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/titoli_di_stato/BTP_Italia.pdf) . The issue is their specific ...
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How to apply multiplicative price seasonality to bond prices in quantlib?

Can someone please give a brief or any link which explains how to apply multiplicative price seasonality to inflation linked bonds in Quantlib using python modules. Have gone through most of the ...
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3 votes
1 answer
266 views

how to simplify Inflation year-on-year option to Zero-coupon option

Belgrade 2004 paper basically proposes that inflation year-on-year volatilities (and hence yoy options) are basically the spread vols between the Zero-coupon vols from (t0 to T) minus the zero-coupon ...
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How to build an inflation term structure in QuantLib?

This is what I've got, but I'm getting weird results. Can you spot an error?: ...
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2 votes
0 answers
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Understanding the link between inflation and credit spreads

I found a paper which uses inflation as an independant variable for credit spread. Unfortunately, the relationship is not explained in this paper. Further research got my to the paper of Kang/Pflueger ...
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Jarrow-Yildirim $\sigma_I$

Under the Jarrow-Yildirim model, the nominal short rate $r_n$, the real rate $r_r$ and index $I$ are modelled according to the following stochastic differential equations under the Martingale measure $...
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2 votes
1 answer
319 views

Where can I get some Inflation Option example quotes (year-on-year and zero-coupon)

I am writing an academic paper on calibration of inflation vanilla options. I need to generate examples for the paper. Is there anywhere I can get example data for the Inflation year-on-year options, ...
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Inflation of Bitcoins

https://www.google.com/amp/s/www.coindesk.com/bitcoins-next-halving-rally-coming-soon-in-2019%3famp suggests that the inflation rate of Bitcoins is around 4 percent. Considering the fact that ...
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1 answer
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Consumer Price Index (CPI) Inflation Impact on Price of Securities

I was wondering if there are any papers on CPI announcements' impact on the price of certain securities that are tied to inflation rates. I know there are derivatives for inflation rate, but I was ...
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