Inflation and the Price of Real Assets

51 Pages Posted: 11 Feb 2020 Last revised: 25 Jul 2022

See all articles by Matteo Leombroni

Matteo Leombroni

Stanford University

Monika Piazzesi

Stanford University; University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Martin Schneider

Stanford University

Ciaran Rogers

Stanford University

Multiple version iconThere are 3 versions of this paper

Date Written: February 2020

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

Leombroni, Matteo and Piazzesi, Monika and Schneider, Martin and Rogers, Ciaran, Inflation and the Price of Real Assets (February 2020). NBER Working Paper No. w26740, Available at SSRN: https://ssrn.com/abstract=3535330

Matteo Leombroni (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Monika Piazzesi

Stanford University ( email )

Stanford, CA 94305
United States

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-3199 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Martin Schneider

Stanford University ( email )

Stanford, CA 94305
United States

Ciaran Rogers

Stanford University ( email )

Stanford, CA 94305
United States

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