What Will Happen to Financial Markets When the Baby Boomers Retire?
January 1, 2000
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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
Pages:
36
Volume:
2000
DOI:
Issue:
018
Series:
Working Paper No. 2000/018
Stock No:
WPIEA0182000
ISBN:
9781451843637
ISSN:
1018-5941
