Lorenzo Ranaldi

We scrutinize the relationship between inflation and asset returns across 18 advanced countries from 1870 to 2020. To allow for inference, we construct a long-run dataset of inflation surprises – reflecting the unanticipated difference between realized and expected inflation – by exploiting new archival and model-derived inflation forecasts. Our analysis unveils a consistent pattern: over the past 150 years, stocks, housing, and bond returns all decline following an inflation surprise. By disentangling demandand supply-driven inflation, we find that asset returns decline regardless of the inflation source. Capitalizing on long run data on fixed exchange rate regimes, we point to the pivotal role of monetary policy in shaping the asset price response. When monetary
policy does not react, returns on real assets are not affected by inflation surprises.