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Baby Boom, Asset Market Meltdown and Liquidity Trap

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Author Info
Junning Cai (University of Hawaii at Manoa)

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Abstract

A so-called “asset market meltdown hypothesis” predicts that baby boomers’ large savings will drive asset market booms that will eventually collapse because of the boomers’ large retirement dissavings. As good news to baby boomers, our analysis shows that this meltdown hypothesis is fundamentally flawed; and baby-boom-driven asset market booms may not necessarily collapse. However, bad news is that, in the case where meltdowns are about to happen, forward-looking baby boomers’ attempts to escape them will be futile and may lead the economy into a “liquidity trap”. (JEL E21, E22, E44, G12)

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File URL: http://129.3.20.41/eps/mac/papers/0401/0401002.pdf
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Publisher Info
Paper provided by EconWPA in its series Macroeconomics with number 0401002.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 37 pages
Date of creation: 14 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0401002

Note: Type of Document - PDF; prepared on Win2000; pages: 37; figures: 3
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Web page: http://129.3.20.41

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Related research
Keywords: baby boom; asset market meltdown; liquidity trap; investment elasticity;

Other versions of this item:

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Andrew B. Abel, 2001. "Will Bequests Attenuate The Predicted Meltdown In Stock Prices When Baby Boomers Retire?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 589-595, November. [Downloadable!] (restricted)
    Other versions:
  2. Kyung-Mook Lim & David N. Weil, 2003. "The Baby Boom and the Stock Market Boom," Working Papers 2003-07, Brown University, Department of Economics. [Downloadable!]
    Other versions:
  3. Andrew B. Abel, 2003. "The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security," Econometrica, Econometric Society, vol. 71(2), pages 551-578, March. [Downloadable!] (restricted)
    Other versions:
  4. Andrew B. Abel & Janice C. Eberly, . "An Exact Solution for the Investment and Market Value of a Firm Facing Uncertainty, Adjustment Costs, and Irreversibility," Rodney L. White Center for Financial Research Working Papers 12-93, Wharton School Rodney L. White Center for Financial Research.
    Other versions:
  5. Abel, Andrew B. & Eberly, Janice C., 1997. "An exact solution for the investment and value of a firm facing uncertainty, adjustment costs, and irreversibility," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 831-852, May. [Downloadable!] (restricted)
  6. Robin Brooks, 2000. "What Will Happen To Financial Markets When The Baby Boomers Retire?," Computing in Economics and Finance 2000 92, Society for Computational Economics. [Downloadable!]
  7. Robin Brooks, 2000. "What Will Happen to Financial Markets When the Baby Boomers Retire?," IMF Working Papers 00/18, International Monetary Fund.
  8. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June. [Downloadable!] (restricted)
    Other versions:
  9. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David S. Gerber & René Weber, 2007. "Aging, Asset Allocation, and Costs: Evidence for the Pension Fund Industry in Switzerland," IMF Working Papers 07/29, International Monetary Fund. [Downloadable!]
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