Inflation and Individual Investors' Behavior: Evidence from the German Hyperinflation
Review of Financial Studies, 2023

Braggion, Fabio; von Meyerinck, Felix; Schaub, Nic
We analyze how individual investors respond to inflation. We introduce a unique data set containing information on local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the German hyperinflation. We find that individual investors buy fewer (sell more) stocks when facing higher local inflation. This effect is more pronounced for less sophisticated investors. Moreover, we document a positive relation between local inflation and forgone returns following stock sales. Our findings are consistent with individual investors suffering from money illusion. Alternative explanations, such as consumption needs, are unlikely to drive our results.

Dating Business Cycles in the United Kingdom, 1700-2010
Economic History Review, 2023

Broadberry, Stephen; Chadha, Jagjit S.; Lennard, Jason; Thomas, Ryland
This paper constructs a new chronology of the business cycle in the United Kingdom from 1700 on an annual basis and from 1920 on a quarterly basis to 2010. The new chronology points to several observations about the business cycle. First, the cycle has significantly increased in duration and amplitude over time. Second, contractions have become less frequent but are as persistent and costly as at other times in history. Third, the typical recession has been tick-shaped with a short contraction and longer recovery. Finally, the major causes of downturns have been sectoral shocks, financial crises, and wars.

Shattered Housing
Journal of Financial Economics, 2024

Happel, Jonas; Karabulut, Yigitcan; Schafer, Larissa; Tuzel, Selale
Do negative housing shocks lead to persistent changes in household attitudes toward housing and homeownership? We use the residential destruction of Germany during World War II (WWII) as a quasi-experiment and exploit the reasonably exogenous region-by-cohort variation in destruction exposure. We find that WWII-experiencing cohorts from high destruction regions are significantly less likely to be homeowners decades later, controlling for regional differences and household characteristics. Underlying this effect are changes in household attitudes toward homeownership that also extend to preferences for housing consumption, with little or no support for risk preferences, income and wealth effects, or supply-side factors.

Independent Regulators and Financial Stability Evidence from Gubernatorial Election Campaigns in the Progressive Era
Journal of Financial Economics, 2024

Del Angel, Marco; Richardson, Gary
Regulatory independence forms a foundation for modern financial systems. The institutions' value is illuminated by a Progressive Era policy experiment when independent state-bank regulators came under governors' supervision. Afterwards, bank resolution rates declined during gubernatorial election campaigns for banks supervised by state but not national authorities. This gubernatorial-campaign effect diminished by two orders of magnitude, but did not disappear, after the FDIC became the independent resolver for all insured banks in 1935. In addition, during the Progressive Era, declines in bank resolutions led to declines in business bankruptcy rates, an effect that is not observed in the FDIC era. Our findings indicate regulatory independence can dramatically reduce but may not eliminate politics' impact on banks and the economy.

Long-Run Trends in Long-Maturity Real Rates, 1311-2022
American Economic Review, 2024

Rogoff, Kenneth S.; Rossi, Barbara; Schmelzing, Paul
Taking advantage of key recent advances in long-run economic and financial data, we analyze the statistical properties of global long-maturity real interest rates over the past seven centuries. In contrast to existing consensus, we find that real interest rates are in fact trend stationary and exhibit a persistent downward trend since the Renaissance. We investigate structural breaks in real interest rates over time and find that overall the Black Death and the 1557 "Trinity default" appear as consistent inflection points. We further show that demographic and productivity factors do not represent convincing drivers of real interest rates over long spans.