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

Author/Editor:

Robin Brooks

Publication Date:

January 1, 2000

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 00/18

Subject:

English

Publication Date:

January 1, 2000

ISBN/ISSN:

9781451843637/1018-5941

Stock No:

WPIEA0182000

Format:

Paper

Pages:

36

Please address any questions about this title to publications@imf.org