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Old folks and spoiled brats : Why the baby boomers' saving crisis need not be that bad

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Author Info

  • Monika BÜTLER
  • Philipp HARMS

Abstract

We study the impact of an anticipated "baby boom" in an overlapping generations economy. The rise of the working population lowers the wage, and the high demand for assets causes a rise in the price of capital which will be reversed when the baby boomers leave the work-force. However, the swings in factor prices are substantially dampened if we allow for more than two generations, endogenous labor supply, and convex capital adjustment costs. This is mainly due to the intertemporal shifts in labor market participation that can be observed if agents work for more than one period. Optimal saving and labor supply decisions of the baby boomers' preceding and subsequent generations partly offset the impact of the unfavorable demographic shock. Accordingly, the impact of a baby boom on the welfare of different generations crucially depends on the elasticity of labor supply.

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Bibliographic Info

Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 01.07.

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Length: 27 pages
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:lau:crdeep:01.07

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Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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Related research

Keywords: baby boom; asset prices; labour market adjustments;

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References

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  1. Andrew B. Abel, 2002. "The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security," NBER Working Papers 9210, National Bureau of Economic Research, Inc.
  2. Welch, Finis, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S65-97, October.
  3. Finis Welch, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," UCLA Economics Working Papers 146, UCLA Department of Economics.
  4. Ríos-Rull José-Víctor, 2001. "Population Changes and Capital Accumulation: The Aging of the Baby Boom," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-48, May.
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Cited by:
  1. John Geanakoplos & Michael Magill & Martine Quinzii, 2002. "Demography and the Long-run Predictability of the Stock Market," Cowles Foundation Discussion Papers 1380R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2004.
  2. Philipp Harms & Philipp an de Meulen, 2009. "The Demographics of Expropriation Risk," Working Papers 09.02, Swiss National Bank, Study Center Gerzensee.
  3. John Geanakoplos & Michael Magill & Martine Quinzii, 2004. "Demography and the Long Run Behavior of the Stock Market," Levine's Bibliography 122247000000000643, UCLA Department of Economics.
  4. Borgmann, Christoph, 2002. "Labor income risk, demographic risk, and the design of (wage-indexed) social security," Discussion Papers 100, Institut für Finanzwissenschaft, Albert-Ludwigs-Universität Freiburg.
  5. Garry Young, 2002. "The implications of an ageing population for the UK economy," Bank of England working papers 159, Bank of England.

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