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

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  • Robin Brooks
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    Abstract

    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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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/18.

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    Length: 36
    Date of creation: 01 Jan 2000
    Date of revision:
    Handle: RePEc:imf:imfwpa:00/18

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    Related research

    Keywords: Economic models; young workers; retirement; pension; retirement benefit; retirement consumption; pension system; pension scheme; pay-as-you-go pension system; individual retirement; individual retirement accounts; labor force; retirement accounts; intergenerational transfers; payroll tax; pension reform; pension systems; pensions; labor income; pay-as-you-go pension systems; benefit pension; pay-as-you-go systems; public pension reform; public pension; tax rate; retirement income; replacement rate; pension wealth; older people; public pensions; retirement savings; defined-benefit pension;

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