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Wednesday, November 1, 2017

Inflation Breakeven Analysis Will Probably Be My Next Book

I am now in the final stages of formatting An Introduction to SFC Models Using Python. I will publish both the electronic and paperback editions simultaneously once I see that the printed proof is in good shape. (At the time of writing, the electronic book edition has some formatting issues that should be resolved by the time I receive the printed proof). Although I have some other projects outstanding, I expect to turn to a report on index-linked bonds, with the working title Inflation Breakeven Analysis.

My earlier books were aimed at somewhat general audience with an interest in economics, while these later ones have a more specialised audience. The Python book is aimed at readers with an interest in implementing stock-flow consistent models. The inflation breakeven analysis book is going to be aimed at financial market participants and economists with an interest in inflation-linked bonds (and the implied inflation breakeven rate). (Link to primer on the breakeven inflation rate.) Although the book will still mainly be a primer, it will not shy away from some of the technical issues (and equations) that arise.

I hope to cover two audiences with the breakeven analysis book:
  1. Financial market participants who are familiar with the bond market, but less familiar with index-linked bond mechanics.
  2. Economists who want to understand the relationship between market participant inflation forecasts and inflation breakevens.
I will be extending my SimplePricer Python package (, however I will not be doing any discussion of Python coding in the book; the reader can figure out how to run the code if they wish. The SimplePricer package can show how the principles of the pricing involved, without wasting spectacular amounts of time worrying about archaic fixed income quote conventions. 

Readers with questions or information about the inflation-linked market are welcome to contact me. I would be particularly interested in a sample yield curve data that I could use in calculations, without having to pay for data licensing fees (without breaking any licensing agreements).

Projected Contents

  • What is breakeven inflation? Primer chapter which covers main points (in case readers quit after one chapter).
  • Market overview: major developed markets.
  • Inflation-Linked Bond Mechanics.
  • Inflation swaps. (Might be merged with the previous...)
  • Yield curve calculations.
  • What do we know about inflation? Covers known facts about the CPI, possibly debunking some "facts" pushed by various economic schools.
  • The ugly reality of the indexation calculations (seasonality, etc.).
  • Simple breakeven versus true economic breakeven.
  • How are index-linked bonds priced? Relative value analysis and factors.
  • Breakeven inflation versus market forecasts of inflation.
  • Investing strategies. (Since I am not lawyered up, not sure about this chapter.) Since this is a book that I aim to sell on a multi-year horizon, I would not waste time discussing the current state of the market. I could possibly discuss how my thinking evolved during my career.
  • Policy considerations (Not sure about this part.)
  • Appendix: Bond pricing basics, and the SimplePricers package. 
Fans of economic theory would mainly be interested in my discussion of inflation forecasts versus breakeven inflation. The discussion of inflation is supposed to be non-controversial, although I may target some urban myths that have sprung up around "inflation" in my "What do we know about inflation?" chapter. I will not attempt to put in a discussion of what determines the rate of inflation; that would be a later report.

The contents will probably show up as draft primer articles over the coming months. I have some existing primers. but I would probably need to beef them up.

What About sfc_models?

I have to clean up some other projects (hi Alex!), and I think it would take considerable time to follow up a book on SFC models. I need to build various business cycle models, which will take time. I would rather write this breakeven inflation book -- which should be the easiest book for me to write -- and slowly build up a set of models that could be used on my next SFC models book.

(c) Brian Romanchuk 2017


  1. Brian can you at least tell me what 'breakeven inflation' means? Kind of a pre-primer primer?

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    Besant technologies Marathahalli

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