We study the redistributive effects of surprise inflation combining bank data with an information experiment during historic inflation. Households are generally well-informed about inflation and concerned about its wealth impact; yet, while knowledge about inflation eroding nominal assets is widespread, most households are unaware of nominal-debt erosion. When informed about the latter, households view nominal debt more positively and increase estimates of their own real net wealth. These changes causally affect actual consumption and hypothetical debt decisions. Our findings suggest real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.

In this paper, I determine the impact of household house price perceptions on the housing wealth effect. I build a structural model of consumption and housing with endogenous home ownership choice, where house price perceptions differ by home ownership status: renters are fully informed about house price changes, but owners are not. I find that the average marginal propensity to consume out of housing wealth (MPCH) is 2.7 cents in a year out of a $1 housing wealth increase for owners, and this effect is approximately twice as large for owners with full information, on average. Along the cross-section of households, the MPCH is largest for owners who face the highest liquidity and debt constraints, as well as for renters who are most likely to want to purchase a home. I further apply my model to examine the effects of house price perceptions on the transmission of a monetary policy tightening event. I determine that the debt and house price channels become increasingly important in the consumption response compared to the saving channel when the probability of updating perceptions rises in the economy. Focusing on the house price channel, my model predicts that the effectiveness of monetary policy transmission increases at higher levels of perception updating probability.

How are households exposed to interest-rate risk? When rates fall, households face lower future expected returns but those holding long-term assets—disproportionately the wealthy and middle-aged—experience capital gains. We study the hedging demand for long-term assets in a portfolio choice model. The optimal interest-rate sensitivity of wealth is hump-shaped over the life cycle. Within cohorts, it increases with wealth and earnings. These predictions fit observed patterns in the United States, suggesting a relatively efficient distribution of interest-rate risk. By protecting workers from rate fluctuations, Social Security limits the welfare consequences of rising wealth inequality when rates fall.