IMF Working Papers

What Will Happen to Financial Markets When the Baby Boomers Retire?

By Robin Brooks

January 1, 2000

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Format: Chicago

Robin Brooks. What Will Happen to Financial Markets When the Baby Boomers Retire?, (USA: International Monetary Fund, 2000) accessed September 19, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper explores whether changes in the age distribution have significant effects on financial markets that are rational and forward-looking. It presents an overlapping generations model in which agents make a portfolio decision over stocks and bonds when saving for retirement- Using the model to simulate a baby boom-baby bust demonstrates that returns to baby boomers will be substantially below returns to earlier generations, even when markets are rational and forward-looking. This result is important because the current debate over how to reform pay-as-you-go pension systems often takes historical returns on financial assets—and on the equity premium—as given.

Subject: Consumption, Financial institutions, Financial markets, Income, Labor, National accounts, Retirement, Securities markets, Stocks, Wages

Keywords: Africa, Algorithm proceeds, Asia and Pacific, Asset market effect, Asset market implication, Baby boom-baby bust, Bond holding, Bond return fall, Consumption, Consumption-Saving model, Descriptive statistics, Equity premium, Expected return, Income, Pension reform, Population aging, Retirement, Return differential, Riskless asset, Securities markets, Stocks, Wage income, Wages, WP

Publication Details

  • Pages:

    36

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2000/018

  • Stock No:

    WPIEA0182000

  • ISBN:

    9781451843637

  • ISSN:

    1018-5941

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