Distributional consequences of asset price inflation in the Eurozone

Klaus Adam, Panagiota Tzamourani

03 December 2015



Central banks’ unconventional monetary policy measures tend to be accompanied by considerable asset price increases. Such asset price increases have potentially large distributional effects and therefore are receiving increasing attention amongst policymakers (Draghi 2015, Haldane 2014). With further unconventional monetary policy measures for the Eurozone being all but announced for the ECB’s December 2015 policy meeting, understanding and quantifying the distributional implications of asset price inflation for the Eurozone is important.

In our recent paper, we shed light on the quantitative importance of the distributional effects associated with asset price increases (Adam and Tzamourani 2015). In contrast to much of the previous literature, which focuses on the distributional effects associated with different inflation outcomes (Doepke and Schneider 2006, Adam and Zhu 2015, Meh and Terajima 2008), we study the relative wealth effects generated by asset price movements.

To simplify matters we focus on the distributional consequences associated with a canonical 10% price increase in three asset categories: equity prices, bond prices, and housing prices. Consideration of a canonical price increase is motivated by the fact that quantifying the actual asset price effects associated with unconventional policy measures tends to be difficult.1 Since the canonical effects we report can be proportionately rescaled to obtain the effects of different price increases, every reader is invited to adjust the results reported below by his own favourite asset price inflation estimate.


Our analysis is based on the last available wave of the Household Finance and Consumption Survey (HFCS), which provides detailed, harmonised, and representative information about households' balance sheets in the Eurozone countries. The survey covers about 62,000 households from all Eurozone countries except Ireland.

From the portfolio information available in the survey we compute each household’s holdings of equities, bonds, and housing. Equities comprise stocks held outright, stocks held via mutual funds or insurance schemes, plus business wealth. Similarly, bonds comprise outright holdings, holdings via mutual funds and insurance schemes.

We then multiply the respective asset holdings by the postulated price increase and report the resulting capital gain scaled by household net wealth. Reporting gains in percent of household net wealth allows comparing households with different net wealth positions in a meaningful way.

The distribution of gains across the population

As shown in Table 1, the capital gains from bond and equity price appreciations are concentrated among a relatively small subset of Eurozone households. The median household fails to benefit at all from bond price or equity price appreciations, while the top 5% winners experience substantial net wealth gains of approximately 3-4%. These gains are sizeable given the considered 10% price increase.  

Capital gains from housing price appreciations are more widespread. The median household now experiences large gains of about 7% of net wealth. The top 5% and 10% winners experience net wealth increases that are even larger than the considered increase in housing prices. These households are leveraged homeowners who rely on mortgages to finance their real estate holdings.

In our paper, we show that the findings for the Eurozone as a whole extend in a similar way to individual Eurozone countries. The only notable exception is Germany, where - due to low home ownership rates - the median household fails to gain from housing price increases.

Table 1. The distribution of capital gains (in % of household net wealth) in the Eurozone associated with a 10% increase in bond, equity and house prices

Capital gains across the net wealth distribution

While the previous section ordered households according to the size of capital gains (relative to household net wealth), we now ask whether the gains are concentrated more amongst richer or more amongst poorer households.2 Figure 1 depicts the capital gains experienced by different household groups in the net wealth distribution (average group gains are divided by the average net wealth holdings). It considers ‘poor households’, defined as those in the bottom 20% of the Eurozone net wealth distribution, ‘middle class households’, defined as the 50% of households above the poor, ‘upper middle class households’, defined as the next 25% of households, and ‘rich households’, defined as 5% richest households according to the net wealth distribution.

Figure 1. Capital gains across Eurozone net wealth groups

The capital gains from each asset class have fairly different distributional effects in the Eurozone. Gains from bond price appreciations are approximately evenly spread out across the net wealth distribution and are relatively small. In contrast, equity price increases are heavily concentrated among the top 5% of households. The distribution of real estate gains has a hump shape. Poor households, among which there are fewer homeowners, benefit approximately as much (relative to group net wealth) as the group of rich households, as the latter hold a relatively smaller proportion of net wealth in real estate. Substantially larger gains are experienced by middle class and upper middle class households.

The effects of bond and equity price increases hold in a very similar way for individual Eurozone countries. The effects of housing price increases, however, are quite heterogeneous across Eurozone countries. In some countries (Austria, Germany, France, Italy, and Malta), the poor benefit relatively little from housing price increases when compared to the Eurozone average. In another set of countries (Finland, the Netherlands, Portugal, and Spain), poor households are more likely homeowners and are then highly leveraged. Therefore, they benefit most amongst all wealth groups from housing price increases.

  • As a result of these findings, housing price increases lead to a significant decrease in net wealth inequality in the Eurozone (measured by the Gini coefficient), while equity price increases lead to a significant increase in wealth inequality.
  • Bond price increases leave net wealth inequality largely unchanged.

Households' asset duration and the distribution of capital gains

It is important to note that the documented capital gains may not directly lead to higher household welfare. This is the case because households often have a fairly long investment horizon. This is especially true for residential real estate or pension wealth. The long investment horizon associated with these assets implies that persistent but ultimately temporary capital gains only compensate households for the low returns following the asset price increases, but leave overall household wealth at the time of the termination of the investment largely unchanged. The fact that the Eurozone government bond yield curves have shifted down following the ECB’s government bond purchase programme suggests that future expected asset returns indeed have shifted down.

The lower future returns are faced by all households, independently of their portfolio structure. This in turn suggests that households who do not hold long dated assets in significant amounts tend to be losers in relative terms; such households fail to benefit from capital gains and only face low returns on future investments.

We seek to identify such households by considering households for which the sum of their equity, bond, and real estate holdings is less than 10% of their net worth. As it turns out, about 28 million households fall into this category, i.e., more than 20% of Eurozone households. These households are rather poor (have low net wealth) and fairly low income levels. This suggests that a large share of poor households fails to experience capital gains.


While only a small set of Eurozone households benefits from bond and equity price increases, house price appreciations are more widespread among households. While the capital gains from bond price increases are approximately evenly spread across the household net wealth distribution, capital gains from equity price increases are concentrated predominantly among high net worth households. House prices lead to the largest gains amongst middle class and upper middle class households. As a result, bond price increases leave net wealth inequality unchanged, equity price increases amplify net wealth inequality, while house prices increases reduce wealth inequality.

It remains an open issue to what extent capital gains actually translate into welfare gains. If households have long investment horizons, capital gains may be partly or fully compensated by lower future holding period returns. Changes in net wealth inequality then overstate the utility effects associated with the documented capital gains.


Adam, K and P Tzamourani (2015), “Distributional consequences of asset price inflation in the Eurozone”, CEPR Discussion Paper, DP10897, October 2015.

Adam, K, and J Zhu (2015), “Price Level Changes and the Redistribution of Nominal Wealth Across the Eurozone,” Journal of the European Economic Association (forthcoming).

Doepke, M, and M Schneider  (2006), “Inflation and the Redistribution of Nominal Wealth,” Journal of Political Economy, 114, 1069—1097.

Draghi, M (2015), “The ECBs recent monetary policy measures: Effectiveness and challenges,” Camdessus lecture, IMF, Washington, DC, 14 May 2015,


Haldane, A G (2014), “Unfair shares,” Speech by the Executive Director, Financial

Stability, Bank of England, at the Bristol Festival of Ideas event, Bristol, 21 May 2014.

Meh, C A, and Y Terajima (2008), “Inflation, nominal portfolios, and wealth redistribution in Canada,” Canadian Journal of Economics, 44, 1369—1402.


1 First, for most policy measures there are only few observations available and sometimes even only a single one; this makes it difficult to filter out any confounding factors from observed asset price movements. Second, it is generally difficult to correctly identify the sum of the price increases resulting from the announcement of the policy measure and its actual implementation.

2 As before, we scale the gains by household net wealth to adjust for the fact that richer household gain more almost by definition.



Topics:  Financial markets Monetary policy

Tags:  asset price inflation, household wealth distribution

Professor of Economics, University of Mannheim; Research Professor, Deutsche Bundesbank; Vice Chair, EABCN; Research Fellow, CFS and CEPR

Statistician in the Research Centre, Deutsche Bundesbank