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 .
Authors
- Kalin Nikolov
- Alexander Michaelides (ORCID: https://orcid.org/0000-0002-0343-3958)
- Yuxin Zhang (ORCID: https://orcid.org/0000-0002-8388-0159)
- Kosuke Aoki
Institutions
- University of Nottingham Ningbo China (CN)
- European Central Bank (DE)
- Japan University of Economics (JP)
- The University of Tokyo (JP)
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