The correlation matrix between break-even inflation rate movements and real interest rate movements across several countries shows puzzling features. Correlation is significantly positive for nearly all cross-border pairs whereas it is nil, positive or negative unsystematically within countries. By means of a correlation matrix decomposition, we provide an explanation for this puzzle.
Gilbert Cette and Marielle de Jong
Classification JEL : E43, G15
Keywords : Inflation-linked bonds, Break-even inflation rates
Updated on: 06/12/2018 11:00