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Inflation and the Price of Real Assets

Author

Listed:
  • Matteo Leombroni
  • Monika Piazzesi
  • Martin Schneider
  • Ciaran Rogers

Abstract

In the 1970s, U.S. asset markets witnessed (i) a 25% dip in the ratio of aggregate household wealth relative to GDP and (ii) negative comovement of house and stock prices that drove a 20% portfolio shift out of equity into real estate. This study uses an overlapping generations model with uninsurable nominal risk to quantify the role of structural change in these events. We attribute the dip in wealth to the entry of baby boomers into asset markets, and to the erosion of bond portfolios by surprise inflation, both of which lowered the overall propensity to save. We also show that the Great Inflation led to a portfolio shift by making housing more attractive than equity. Disagreement about inflation across age groups matters for the size of tax effects, the volume of nominal credit, and the price of housing as collateral.

Suggested Citation

  • Matteo Leombroni & Monika Piazzesi & Martin Schneider & Ciaran Rogers, 2020. "Inflation and the Price of Real Assets," NBER Working Papers 26740, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26740
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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G5 - Financial Economics - - Household Finance

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