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

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.
Publication date: January 2000
ISBN: 9781451843637
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Political Process- General , Political Process- General , Public Policy- Social Security , Public Policy- Social Security , 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 , I

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