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Inflation, Monetary Policy, and Portfolio Decisions of U.S. Households

Author

Listed:
  • Bonaparte, Yosef
  • Korniotis, George
  • Kumar, Alok
  • Vosse, Melina

Abstract

We study the impact of monetary policy changes on portfolio decisions of U.S. households. Contrary to the predictions of canonical portfolio choice models, interest rate increases are related to increased equity ownership and larger wealth allocations to risky assets. Inflation hedging is a likely explanation for these findings. Interest rates have a stronger impact on the equity exposure of households that experience higher inflation, especially those with greater inflation awareness and potentially stronger hedging motives. Using household portfolios at a large discount brokerage house, we provide direct evidence that investors with greater inflation sensitivity overweight stocks with high hedging potential.

Suggested Citation

  • Bonaparte, Yosef & Korniotis, George & Kumar, Alok & Vosse, Melina, 2024. "Inflation, Monetary Policy, and Portfolio Decisions of U.S. Households," CEPR Discussion Papers 19511, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19511
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    File URL: https://cepr.org/publications/DP19511
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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