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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)

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://128.118.178.162/eps/mac/papers/0401/0401002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0401002.

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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://128.118.178.162

Related research

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

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References

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  1. Robin Brooks, 2000. "What Will Happen to Financial Markets When the Baby Boomers Retire?," IMF Working Papers 00/18, International Monetary Fund.
  2. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
  3. 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.
  4. 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.
  5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  6. 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.
  7. Andrew B. Abel, 2001. "Will Bequests Attenuate the Predicted Meltdown in Stock Prices When Baby Boomers Retire?," NBER Working Papers 8131, National Bureau of Economic Research, Inc.
  8. 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.
  9. Kyung-Mook Lim & David N. Weil, 2003. "The Baby Boom and the Stock Market Boom," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(3), pages 359-378, 09.
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Cited by:
  1. René Weber & David S. Gerber, 2007. "Aging, Asset Allocation, and Costs," IMF Working Papers 07/29, International Monetary Fund.

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