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What Will Happen to Financial Markets When the Baby Boomers Retire?
Author:
Mr. Robin Brooks
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Series:
IMF Working Papers
Volume/Issue:
Volume 2000: Issue 018
Language:
English
Publication Date:
01 Jan 2000
DOI:
https://doi.org/10.5089/9781451843637.001
ISBN:
9781451843637
ISSN:
1018-5941
Pages:
36
Keywords:
WP; descriptive statistics; expected return; equity premium; population aging; pension reform; riskless asset; asset market effect; bond return fall; asset market implication; return differential; algorithm proceeds; Consumption; Retirement; Income; Stocks; Securities markets; Africa; Asia and Pacific; baby boom-baby bust; bond holding; wage income; Consumption-Saving model; Wages
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund