Do Forest Assets Hedge Inflation?

Forest assets are commonly viewed as good hedges against inflation. The view is based largely, however, on anecdotal evidence rather than empirical analysis. This paper examines the historical relationship between forestry returns and inflation. The results suggest that forests in the U.S. West and South have been superior hedges against higher-than-anticipated inflation; forests in the Northeast have been less effective inflation hedges. The results also indicate that western and southern forests have been overvalued during periods of relatively high expected inflation. Markets for forests in the Northeast, however, have been relatively efficient processors of inflation expectations.