Essays on Macrofinance and Inflation

Abstract

This dissertation studies how financial balance sheets - of investors, banks, and households - transmit macroeconomic shocks and household decisions into real outcomes. It consists of three independent chapters. <br/> The first chapter examines the response of real asset returns to unexpected inflation in a panel of 18 advanced economies from 1870 to 2023, using newly digitized OECD forecasts combined with model-based surprises. Real returns on stocks, housing, and long-term bonds decline persistently after an inflation surprise, and exchange-rate-regime variation identifies the central-bank response — not the origin of inflation — as the dominant channel. The second chapter traces the same shock through banks, which lend long and borrow short: unexpected inflation erodes the real value of bank assets relative to liabilities and tightens lending constraints. Combining long-run macro data with Portuguese bank–firm administrative records, it shows that a one-percentage-point inflation surprise reduces bank capital and real loans by roughly three percent within five years, with banks holding larger maturity gaps cutting credit more and their borrowers investing less. The third chapter turns to households, using three decades of Dutch survey data matched to security-level prices in a tax-free setting to document how paper capital gains become realized income: which positions are liquidated, by whom, in response to what, and how the proceeds are allocated across consumption, housing, and reinvestment. <br/> Together, the chapters argue that the structure of balance sheets shapes the magnitude, heterogeneity, and persistence of responses to inflation and to household portfolio decisions.