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Inflation and Household Finance
In the last 18 months, inflation in the United States and many other countries has risen to levels last seen in the early 1980s. Inflation has many effects on the economy; some of the most important involve household finance. At the July 2022 meeting of the NBER Household Finance Working Group, Stephen Zeldes of Columbia University moderated a panel discussion that explored the consequences of high inflation for consumer spending, borrowing, and saving. Four panelists — Carola Binder of Haverford College, Jonathan Parker and James Poterba of MIT, and Martin Schneider of Stanford University — offered their perspectives on these issues.
A research summary from the monthly NBER Digest
Which Asset Classes Provide Inflation Hedges?
Nominal fixed-income securities such as bonds do not protect investors against unexpected inflation. In addition to inflation eroding the purchasing power of payouts, bond prices also fall when interest rates rise, which typically occurs during inflationary periods. In contrast, investors often consider real assets like stocks, real estate, and commodities to be effective inflation hedges. Real estate and commodity prices, which enter the price level directly or indirectly, should track inflation to some degree. Stocks are claims to real cash flows, which should keep pace with inflation if firms can pass higher input costs forward to consumers.
In Getting to the Core: Inflation Risks within and across Asset Classes (NBER Working Paper 30169), Xiang Fang, Yang Liu, and Nikolai Roussanov find that while real estate...
From the NBER Reporter: Research, program, and conference summaries
US Environmental Policies, the Environment, and the Economy
US environmental regulations have expanded dramatically since passage of the Clean Air Act, Clean Water Act, and similar laws a half century ago. Today, these policies face growing debate. While they have improved environmental quality, they also impose important costs. Moreover, their benefits and costs can have uneven impacts across racial and income groups.
Economists have long studied the effectiveness, efficiency, and equity of environmental policy, but three obstacles have impeded this research. One is a dearth of data on individual firms and households that could enable analysis of a broad range of policy impacts. Another is the challenge of quantifying the stringency of regulation for different entities and in different years. A third is the complexity of combining data,…
From the NBER Bulletin on Health
Heterogeneous Mental Health Effects of Shocks to Housing Prices
US house prices fell by 34 percent between 2006 and 2012. But the downturn was more severe in some parts of the country than in others. For example, home values in Phoenix and Las Vegas dropped by 46 and 60 percent, respectively. In contrast, house prices in Pittsburgh and Buffalo didn’t fall at all, instead increasing by 5 and 6 percent over this time period.
How did the overall housing downturn, and the associated Great Recession, affect mental health among older adults? In Economic Crises and Mental Health: Effects of the Great Recession on Older Americans (NBER Working Paper 29817), David M. Cutler and Noémie Sportiche show that consequences varied with financial stability and race. To…
From the NBER Bulletin on Retirement and Disability
How Short-Term Private Disability Insurance Affects Public Disability Benefits
Forty percent of US workers have access to employer-provided short-term disability insurance (STDI). This insurance generally pays benefits to disabled workers during the five-month waiting period between disability onset and when Social Security Disability Insurance (SSDI) benefits can commence. By providing income during the waiting period, STDI may encourage more disabled workers to apply for SSDI, leading to more SSDI awards. However, employers who offer STDI have a stronger financial incentive to offer accommodations to disabled workers to help them to remain on the job instead of taking up STDI benefits, which could reduce SSDI applications and awards.
Examining the effect of STDI access on SSDI applications and awards is challenging, since workers with and without STDI access may differ in ways that affect…
From the NBER Bulletin on Entrepreneurship
The Rise of Private Financing for Entrepreneurs
In Private or Public Equity? The Evolving Entrepreneurial Finance Landscape (NBER Working Paper 29532), Michael Ewens and Joan Farre-Mensa survey the changes in the US entrepreneurial finance market over the last two decades. Their study begins by describing the differences between publicly listed and private firms, and then explores how several regulatory, technological, and competitive changes affecting both startups and investors have affected the costs and benefits of going public. The paper emphasizes the growing costs of the disclosures required of public firms, and also observes that major technological changes have reduced the initial capital investment…
Featured Working Papers
When Norway decreed that high school students who miss more than 10 percent of the hours in a given course without a medical excuse could not receive a final grade, absences fell by over 20 percent, Michael Baker, Nina Drange, and Hege Marie Gjefsen find.
A one standard deviation increase in exposure to industrial robots in the workplace reduces annual work-related injury rates by approximately 1.2 cases per 100 workers, according to research by Rania Gihleb, Osea Giuntella, Luca Stella, and Tianyi Wang.
Venture capital-backed entrepreneurs had faster career trajectories than their peers prior to founding their companies, and after exiting their start-ups, obtain jobs about three years more senior than their before-founding peers, according to Natee Amornsiripanitch, Paul Gompers, George Hu, Will Levinson, and Vladimir Mukharlyamov.
Life insurance policyholders, especially the young and those in poor health, are more likely to allow their policies to lapse during economic downturns, Ralph S. J. Koijen, Hae Kang Lee, and Stijn Van Nieuwerburgh show.
Common stocks are a better hedge against headline inflation, which includes food and energy costs, than against core inflation, which excludes them, in part because higher energy prices are associated with higher stock prices in the energy sector, Xiang Fang, Yang Liu, Nikolai Roussanov find.
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