Inflation and the Price of Real Assets

Matteo Leombroni, Monika Piazzesi, Martin Schneider and Ciaran Rogers

No 26740, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E1 E2 E3 E44 G1 G11 G12 G5 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
Note: AP EFG
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Citations: View citations in EconPapers (39)

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Working Paper: Inflation and the price of real assets (2009)
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