Campbell, JohnShiller, Robert J.Viceira, Luis2013-07-252009Campbell, John Y., Robert J. Shiller, and Luis Manuel Viceira. 2009. Understanding inflation-indexed bond markets. Brookings Papers on Economic Activity 2009(Spring): 79-120.0007-2303http://nrs.harvard.edu/urn-3:HUL.InstRepos:10885503This paper explores the history of inflation-indexed bond markets in the US and the UK. It documents a massive decline in long-term real interest rates from the 1990's until 2008, followed by a sudden spike in these rates during the financial crisis of 2008. Breakeven inflation rates, calculated from inflation- indexed and nominal government bond yields, stabilized until the fall of 2008, when they showed dramatic declines. The paper asks to what extent short-term real interest rates, bond risks, and liquidity explain the trends before 2008 and the unusual developments in the fall of 2008. Low inflation-indexed yields and high short-term volatility of inflation-indexed bond returns do not invalidate the basic case for these bonds, that they provide a safe asset for long-term investors. Governments should expect inflation-indexed bonds to be a relatively cheap form of debt financing going forward, even though they have offered high returns over the past decade.en-USJournal Article2013-07-25