Inflation, Money Demand, and Portfolio Choice

We estimate a structural, nominal, life-cycle portfolio choice model with exogenous housing tenure and use shopping costs to generate money demand. Homeowners (renters) with negative (positive) net bond positions react differently to changing inflation risks. The correlation between real bond and real stock returns emerges as the strongest inflation risk quantitatively and generates large increases in stock market demand for homeowners in a 1970s counterfactual. Higher expected inflation encourages stock market participation but affects negatively poorer households without access to that adjustment. A more negative inflation-bond return correlation pushes homeowners more into the stock market, whereas poorer renters move into money. This paper was accepted by David Sraer, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.02007 .

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Publication Details

Journal
Management Science
Published
2025-05-16
DOI
https://doi.org/10.1287/mnsc.2022.02007
Citations
1
Primary Topic
Financial Literacy, Pension, Retirement Analysis
Type
article
Field-Weighted Citation Impact
3.91
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article

Inflation, Money Demand, and Portfolio Choice

Kalin Nikolov, Alexander Michaelides, Yuxin Zhang, Kosuke Aoki
1 citations
Management Science
Financial Literacy, Pension, Retirement Analysis
3.91
article

Inflation, Money Demand, and Portfolio Choice

Kalin Nikolov, Alexander Michaelides, Yuxin Zhang, Kosuke Aoki
article en
1 citations

Abstract

We estimate a structural, nominal, life-cycle portfolio choice model with exogenous housing tenure and use shopping costs to generate money demand. Homeowners (renters) with negative (positive) net bond positions react differently to changing inflation risks. The correlation between real bond and real stock returns emerges as the strongest inflation risk quantitatively and generates large increases in stock market demand for homeowners in a 1970s counterfactual. Higher expected inflation encourages stock market participation but affects negatively poorer households without access to that adjustment. A more negative inflation-bond return correlation pushes homeowners more into the stock market, whereas poorer renters move into money. This paper was accepted by David Sraer, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.02007 .

Management ScienceVol. 72(2)
University of Nottingham Ningbo China (CN), European Central Bank (DE), Japan University of Economics (JP), The University of Tokyo (JP)
Decent work and economic growth
Openalex Percentile: Top 11%
Financial Literacy, Pension, Retirement Analysis
3.91
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